The Central Bank of Nigeria (CBN) after the first Monetary Policy Committee (MPC) meeting for the year retained its monetary policy rate in consideration of economic risks (global and domestic), including inflationary pressure which has intensified the risk of currency depreciation.
Consequently, by vote of all the 11 members present at the meeting, the MPC decided for the 15th consecutive time to keep the Monetary Policy Rate (MPR) at 14.0 percent with asymmetric corridor around the MPR at +2%/-5%; Cash Reserve Requirement (CRR) at 22.5 percent, and Liquidity Ratio at 30 percent.
Announcing the decision in Abuja on Tuesday, Godwin Emefiele, governor of the CBN, explained that the MPC felt that tightening will result in loss of the gains so far achieved, noting that this may drive the banks to reprise assets, thus increasing the cost of credit as well as elevating credit risks in the economy.
“It will also worsen the position of the Non-Performing Loans (NPLs) of the banks. The committee also finds that tightening will dampen investment and hamper improvement in output growth given the already fragile growth performance achieved,” Emefiele said.
Looking at the implication of the decision, Johnson Chukwu, managing director/CEO, Cowry Asset Management Limited, said the cost of borrowing will remain at the current levels and that the slow growth of the economy will continue.
Nigeria’s inflation rate, which has been in double digits for three years, rose to a seven-month high of 11.44 percent in December, from 11.28 percent in November 2018, according data released recently by the National Bureau of Statistics (NBS).
In order to address the ensuing risks to possible increase in inflation rate in Nigeria and the weak exchange rate, Ayodele Akinwunmi, head of research at FSDH Merchant Bank, said the CBN will continue to use the sales of government securities to influence interest rates and yields.
The committee considered the risk in the global economy, noting the downward revision in the projected global output in 2019. It also considered the adverse impact of the trade war between the US and its major trading partners, the likelihood of lower crude oil prices, the impact of capital flows of continued monetary policy normalisation by major advanced economies, distorted signals of real exchange negotiations, as well as OPEC and other socio-political tensions and election risk on the domestic economy.
“It was clear that Nigeria’s approaching general elections risks are taking centre-stage, pushing economic policymaking to the sidelines,” Razia Khan, Standard Chartered Banks Africa Chief Economist, said in an emailed response to BusinessDay.
Nigeria emerged from its first recession in 25 years in 2017 but growth remains fragile, although higher oil prices and recent debt sales have helped the continent’s biggest crude producer to accrue billions of dollars in foreign reserves.
On external borrowing, Emefiele noted the increase in the debt level and advised caution, noting that it could fast be approaching the pre-2005 Paris Club exit level.
The Federal Government is recommending a 50 percent rise in the minimum wage weeks before a presidential election in a country where the cost of living has become a major issue.
“The MPC meeting was somewhat secondary to the decision that a bill proposing a 50 percent increase in the minimum wage will now be put forward,” Khan said.
She said the legislation passing the bill at this stage remains uncertain, although the decision followed a Council of State meeting earlier on Tuesday.
According to her, the MPC already made clear in its November statement that members do not consider a minimum wage increase, on its own, to be inflationary, given the current underperformance of the economy and subdued demand.
“The big question then is whether the minimum wage increase might prove to be the precursor to other post-election reforms – perhaps a revisiting of fuel price deregulation. Any new developments will be key to the CBN’s assessment of risks at its next MPC meeting in March,” Khan said.
HOPE MOSES-ASHIKE, ISREAL ODUBOLA, SEGUN ADAMS & OLUFIKAYO OWOEYE
