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Emefiele CBN

254th MPC meeting begins today, may recalibrate rates at the end of tomorrow

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All is set for the first meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) this year and the 254th since it started today and tomorrow in Abuja.

In a statement posted on the bank’s website, the meeting will hold at MPC Meeting Room, 11th business Hilights recalls that the legal backing for monetary policy by the Bank derives from the various statutes of the bank such as the CBN Act of 1958 as amended in CBN Decree No. 24 of 1991, CBN Decree Amendments 1993, No. 3 of 1997,No. 4 of 1997,No. 37 of 1998,No. 38 of 1998,1999 and CBN Act of 2007.

Section 12 Sub-sections (1) to (5), CBN Act of 2007 (Amended)

In order to facilitate the attainment of price stability and to support the economic policy of the Federal Government, there shall be a Committee of the Bank known as the Monetary Policy Committee (in this Act referred to as “the MPC”).

Financial analysts are upbeat that part of the issues to be tabled at the meeting will include the recent comment by the Vice President in Davos. The Vice President, Prof Yemi Osinbajo had told reporters that the floating status of the naira has become unacceptable, meaning that the MPC must come up with a strategic model to save the naira this time.

Moreover, experts are expectant that the CBN will review the current allocation model of forex to sector of the economy especially manufacturers who had been poorly encouraged since the forex crisis begun early last year.

During the last meeting held fourth quarter of last year, the Committee assessed the fragile macroeconomic conditions and the strong headwinds confronting the economy. In particular, the Committee considered the implications of the twin deficits of current account and budget deficits, the rise of nationalist sentiments across the West and implications for national elections in France and Germany as well as the forthcoming referendum in Italy.

According the CBN Governor, Mr. Godwin Emefiele, “Other considerations include the yet to be unveiled long term uncertainties of Brexit and expectations of significant shifts in US economic policy. The Committee reaffirmed the urgency of prioritizing the diversification of the economy given the emerging gloomy protectionist outlook of the global economy”.

The Committee also evaluated the impact of its July and September 2016 actions on the macroeconomy noting that while foreign exchange inflows into the economy had improved significantly in July and August, it declined after the September MPC meeting, leading to rising inflation and increasing negative real interest rates.

In his remarks after the two-day meeting last year, Emefiele noted that “Outflows significantly dropped, lending credence to the propriety of the decisions of the July and September MPC meetings”.

“The MPC reiterated the limitations of monetary policy in reversing the current stagflationary condition in the economy, which it traced to supply and demand shocks. Members stressed the need for a robust and more keenly coordinated macroeconomic policy framework that would restart output growth, stimulate aggregate demand and rein in inflation expectations. “Consequently, the MPC welcomes efforts at resuscitating planning, noting the progress made in developing the medium term economic recovery plan.

“The MPC urged the Federal Government to urgently assess the extent of its indebtedness to domestic economic agents and develop a framework for securitizing the debts in order to settle its outstanding domestic contractual obligations which cuts across all sectors of the economy. These accumulated debts have slowed business activities of economic agents; most of who are indebted to the banking system, thus compromising the integrity of the financial system. It also advised the Bank to commit to greater surveillance and deployment of early warning systems in managing the banking system.

“Overall, members called for an enrichment of fiscal and other sector initiatives and interventions towards resolving the growth challenges in the economy in order to promptly revive confidence in the economy.

In his comments on the outlook, CBN Governor said “Available data and forecasts of key economic variables indicate that the outlook for growth and inflation in the medium term continues to be challenging”.

“Growth is expected to remain less robust given the absence of sufficient fiscal space while the current tight stance of monetary policy and improved agricultural harvests are expected to contain further price increases and moderate price expectations as the trend has already revealed.

Emefiele hinted that “The Committee assessed the relevant risks to the global and domestic economy and concluded that the risks to the economy remained highly elevated on two fronts (price and output).

“However, considering the importance of price stability, and being mindful of the limitations of monetary policy in influencing output and employment under conditions of stagflation, the Committee decided unanimously in favour of retaining the current stance of monetary policy, thus keeping the MPR at 14.0 per cent alongside all other policy parameters.

“In summary, all 10 MPC members voted to: (i) Retain the MPR at 14 per cent; (ii) Retain the CRR at 22.5 per cent; (iii) Retain the Liquidity Ratio at 30.00 per cent; and (iv) Retain the Asymmetric Window at +200 and -500 basis points around the MPR.


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