The Central Bank of Nigerian (CBN) this afternoon ended its two-day Monetary Policy Committee (MPC) meeting retaining all existing monetary policies introduced during the in the September meeting. Meaning that the MPR by 200 basis points to 14.0 percent is intact; the CRR remains at 22.5 percent, the asymmetric corridor stays at +200/–500 basis points; and, liquidity ratio remains at 30 percent.
This was announced by the CBN Governor, Mr. Godwin Emefiele Tuesday afternoon when he was reading the 40 paragraph communiqué of the last MPR meeting this year.
The meaning of retaining the rates according to pundits is that contraction of the economy is still ongoing and inflationary trend may worsen early next year.
The CBN relied on the squeeze being experienced in the economy to take the decision which before had been widely speculated, saying the apex bank will continue from time to time to do everything possible to better the economy for all.
At the beginning, Emefiele started his address by chronicling the situations in other mega economies of the world to explain that what we are facing is not only a Nigerian problem after all.
It would be recalled that while addressing bankers at a gathering in Lagos weekend said the rate of inflation has become so disturbing that rates may remain.
Experts see the move as a way of avoiding more troubles for the ailing economy hence national external income has remained very low within the period under review.
However, analysts are apprehensive that foreign direct investors may continue to stay at our shores than coming in because the interest rate is not very good this time.
Other observers had also expected the CBN to use the lowering of interest to caution the biting effects of inflation, but that never happened meaning that the road is very clear for hyper inflationary trends into next year.
CBN linked the global recession to the US elections and brexit plus other challenges touching mega economies.
He said “whereas we cannot fine-tune monetary policy endlessly, it is imperative to understand the core of our economic challenges. I note that Nigeria’s marginal propensity to import, at between 0.7 and 0.8, is significantly high. These figures imply that about 70 to 80 percent of every extra naira to economic agents in Nigeria will find its way to the foreign exchange market to seek imports. Expansionary macroeconomic policy, if not properly targeted, will export jobs and debilitate Nigeria’s economy. I reiterate the need to identify high impact productive ventures in Nigeria with near-zero import content to benefit from fiscal stimuli.
“This will ensure that the multiplier effect of the extra spending in maximised locally with minimal leakage abroad.
“In conclusion, I note that the choice before us today remains intricate as it revolves around the trade-off between inflation and growth in a stagnating economy.
It is crucial to ensure that inflation rate in medium-term is effectively curtailed.
“Nonetheless, it is also important that we allow the effect of past policy shocks to asymptotically dissipate in order not to subvert the natural trajectory of impulse-response relationships. In addition, on the balance of evidence, I assert that the current level of the monetary policy rate is optimal and appropriate. Attempts to reduce the rate at this time will be counterproductive as it goads the time inconsistency problems associated with macro-policies.
