By Codratus Godson
- All rates retained
- Commends economic policies
- Urges for savings by all governments
- Wants increase in taxes to close GDP to tax gap
- GDP to grow faster in 2018 (close to 2 per cent)
Rates:
(i) MPR at 14.0 per cent;
(ii) CRR at 22.5 per cent;
(iii) Liquidity Ratio at 30.0 per cent; and
(iv) Asymmetric corridor at +200 and -500 basis points around the MPR.
The much-expected meeting of the CBN’s Monetary Policy Committee (MPC), the highest monetary policy-making body in Nigeria, has ended and some outcomes have been mentioned.
The MPC was reconstituted and this was their first meeting, attended by nine of them. Major highlights include retaining the previous rates such as interest rate and retention rates. The Committee also commended the on-going economic policies of the FG but noted the increase in oil revenue, thus urging the states and FG to consider savings. The hidden message is appeal to the FG to increase taxes to close the gap between GDP and tax revenue. Bill Gates had also noted this and said Nigeria’s ratio was the lowest in the world, though most persons only heard where he pelted Nigeria for paying more attention to infrastructural development over human capital and welfare such as primary health and education.
Full statement by the CBN:
CENTRAL BANK OF NIGERIA COMMUNIQUÉ NO 117 OF THE MONETARY POLICY
COMMITTEE MEETING OF TUESDAY 3RD AND WEDNESDAY 4TH APRIL, 2018
Background
The re-constituted Monetary Policy Committee (MPC) held its maiden
meeting, the 260th meeting of the Committee, its first in 2018, on 3rd and 4th of
April, 2018 against the backdrop of strengthening global growth and
improving domestic economic conditions. The Committee assessed the
developments in the global and domestic economic environments during
the first quarter of 2018, including the risks to price stability, financial stability,
and economic growth in the short-to-medium term. Nine members of the
Committee attended the meeting.
Global Economic Developments
The strong headwinds which confronted the global economy in 2017 showed
signs of moderation, giving way to prospects for stronger growth in 2018.
Consequently, global output is projected to grow by 3.9 per cent in 2018 from
3.7 per cent in 2017 on the heels of rebound in investment as a result of
improvements in investor confidence, strengthening commodity prices, rising
aggregate demand and accommodative monetary policy, especially in
some advanced economies. With the sustained recovery in oil prices,
aggregate demand is expected to continue to firm up. Growth in the
advanced economies is projected at 2.3 per cent in 2018, and 4.9 per cent
for emerging markets and developing economies (EMDEs). The Monetary
Policy Committee noted some downside risks to the outlook for global growth
to include: continuing normalization of monetary policy in the advanced
economies; new U.S. trade policy; uncertainties associated with the BREXIT
negotiations; and rising geo-political tensions in the Middle-East and on the
Korean Peninsula.
In the advanced and emerging market economies, inflation is projected at
1.9 and 4.5 per cent in 2018, respectively. However, the broad indication from
the IMF is that over the medium to long term, inflation may rise at a modest
pace as general economic conditions remain subdued. Asset prices and
long-term yields in major financial markets are also on the increase,
confirming the possibility of a future rise in the price level.
Domestic Output Developments
Data from the National Bureau of Statistics (NBS) indicate that real Gross
Domestic Product (GDP) grew by 1.92 per cent in the fourth quarter of 2017,
up from 1.40 and 0.72 per cent in the third and second quarters, respectively.
The economy grew overall by 0.83 per cent in 2017. The main drivers of real
GDP growth were agriculture (1.08%), industry (0.56%) and trade (0.35%). Non-oil
real GDP grew by 1.45 per cent in the fourth quarter of 2017 compared
with a contraction of 0.76 per cent in third quarter of 2017, indicating that the
economy is gradually returning to a path of sustainable positive growth.
The Committee also noted the continuous positive outlook based on the
Manufacturing, and Non-manufacturing Purchasing Managers’ Index (PMI),
which stood at 56.7 and 57.2 index points, respectively, in March 2018,
indicating expansion for the twelfth and eleventh consecutive months. The
Committee believes that effective implementation of the Economic
Recovery and Growth Plan (ERGP) by the Federal Government and quick
passage of the 2018 budget will continue to enhance aggregate demand
and confidence in the Nigerian economy.
Developments in Money and Prices
The Committee noted that money supply (M2) grew marginally by 0.07 per
cent in February 2018 (annualised to 0.42%), in contrast to the provisional
growth benchmark of 10.29 per cent for 2018. The development in M2 largely
reflected growth in net domestic credit (NDC) of 4.05 per cent (annualised to
24.30%), emanating majorly from net credit to government, which grew by
19.99 per cent (annualised to 119.94%) against the provisional benchmark of
33.12 per cent. Credit to the private sector also grew by 1.49 per cent
(annualised to 8.94%) in February 2018, compared with the provisional annual
benchmark of 14.88 per cent. Net foreign assets (NFA), contracted by 2.82
per cent, annualized to 16.92 per cent, compared with the provisional
benchmark of -29.31 per cent. Narrow money (M1), also contracted by 2.77
per cent (annualised to 16.62%). The Committee urged the Federal
Government to strongly exercise restraint on domestic borrowing in order to
lower the cost of credit to the private sector.
The Committee noted that the continued low level of lending by banks
remains a constraint to growth of the real sector of the economy. The
Committee advised the Management of the CBN to continue to provide the
required policy impetus to engender improved credit delivery by the deposit
money banks to the economy.
Inflationary pressures in the economy continued to moderate with headline
inflation (year-on-year) receding for the thirteenth consecutive month to
14.33 per cent in February 2018 from 18.72 per cent in January 2017. Monthon-
month food inflation fell by 133 basis points to 17.59 per cent in February
2018, and core inflation also declined marginally by 38 basis points to 11.71
per cent during the same period.
Money market interest rates reflected liquidity conditions in the banking
system as the average inter-bank call rate increased to averagely 12.42 per
cent in February 2018 from 9.49 per cent in December 2017. The Open buy
back (OBB) rate also increased to 13.19 per cent in February 2018 from 8.46
per cent in December 2017. The movement in the net liquidity position and
interest rates reflected the combined effects of OMO auctions, foreign
exchange interventions and statutory allocation to state and local
governments.
The Committee also noted the continuous improvement in the level of
external reserves, which stood at US$46.699 billion as at March 29, 2018.
Similarly, the All-Share Index (ASI) rose by 8.5 per cent from 38,243.19 on
December 29, 2017, to 41,504.51 on March 29, 2018. Market Capitalization
(MC) improved by 10.2 per cent from N13.61 trillion on December 29, 2017, to
N14.99 trillion during the same period. The Committee observed that, while
this development may be a reflection of improved investor confidence in the
economy, it cautioned that the Management of the Bank should carefully
monitor the developments and to establish mechanisms for safeguarding the
stability of the foreign exchange market in the event of a sudden capital
reversal. The Committee observed the continued rise in oil prices, but
acknowledged the inherent volatility in commodity prices and urged the
Bank not to relent in building external reserves buffers against any future price
downturns and as a means of sustaining investor confidence in the economy.
The Committee noted the relative stability in the foreign exchange market,
with declining premia across all segments of the market. It observed with
satisfaction, the sustained high level of activity at the Investors’ and Exporters’
(I&E) window of the foreign exchange market. The window continues to
attract more investors, thus boosting foreign exchange supply. Consequently,
total foreign exchange inflow through the central bank increased by 73.00
per cent in February 2018, compared with the previous month. This was
attributed to the increase in receipt of proceeds from Petroleum Profit Tax
(PPT), royalties and crude oil & gas. Total outflow also increased in February
2018 by 15.69 per cent, as a result of higher payments for invisibles, interbank
transactions as well as JVC cash call payments.
2.0. Overall Outlook and Risks
Forecasts of key macroeconomic indicators give a positive outlook for the
Nigerian economy in 2018. This is predicated on the quick passage and
effective implementation of the 2018 budget, improved security, foreign
exchange market stability as well as favourable crude oil prices. On the
downside, the Committee noted the potential impact of the 2019 electionrelated
spending, against the weak backdrop of tax revenue efforts,
herdsmen related violence and rising yields in the advanced economies.
Indications in the US and the UK point to higher interest rates in the short to
medium term.
3.0. The Considerations of the Committee
The Committee noted with satisfaction the gradual return to macroeconomic
stability as reflected in the third consecutive quarterly growth in real GDP in
the fourth quarter of 2017. It also noted the continued moderation in all
measures of inflation as well as sustained stability in the naira exchange rate
and urged the Bank to sustain the stability to avoid a mission drift. In
particular, the Committee welcomed the narrowing of the exchange rate
premium between the BDC segment and the Investors’ and Exporters’ (I&E)
window of the foreign exchange market. Overall, the Committee noted that
the recovery of the economy was strengthening, in view of the return to
growth of the Services Sector. As the fiscal sector continues to settle its
outstanding liabilities, it reduces its domestic debt profile, thus increasing the
liquidity of the banking system. However, the Monetary Policy Committee
observed increasing monetization of oil proceeds as evident in the growing
FAAC distribution, relative to the 2017 level of disbursements. The Committee
urged the Government to initiate strong stabilization programmes and to
freeze the growth in its aggregate expenditure and FAAC distributions in
order to create savings; needed to stabilize the economy against future oil
price related shocks.
Notwithstanding the general improvement in macroeconomic conditions,
the Committee noted the rather slow pace of moderation in food inflation. It
also took note of the potential risk of a pass-through from rising global
inflation to domestic prices. Members, however, expressed confidence that
the tight stance of monetary policy would continue to complement other
policies of government in addressing some of the structural issues underlying
the stickiness of food prices. The Committee noted that at 14 per cent, the
policy rate was tight enough to rein-in current inflationary pressures. The
Committee, therefore, reaffirmed its commitment to price stability conducive
to sustainable and inclusive growth.
The Committee noted with satisfaction the gradual implementation of the
Economic Recovery and Growth Plan, in an effort to stimulate economic
recovery. In the same vein, the Committee urged quick passage of the 2018
Appropriation Bill by the National Assembly, so as to keep fiscal policy on
track and deliver the urgently needed reliefs in terms of employment and
growth for the citizenry.
The Committee noted the relatively strong balance sheets of the deposit
money banks’ and the stable outlook. This is in spite of the concentration of
non-performing loans in a few sectors, which the Committee observed was
satisfactorily being addressed by adequate mechanisms established by the
Bank to address the phenomenon. The Committee also noted that as
Government pays off its huge contractor debts, a sizeable portion of these
non-performing loans will be addressed. The Committee urged the Bank to
strengthen its supervisory oversight and early warning systems to promptly
identify, monitor compliance with extant prudential regulations, sustain
macro-prudential policy and manage emerging vulnerabilities in the banking
system.
The Committee reiterated the Bank’s commitment to delivery of low interest
credit as evidenced in its bold steps to adopt unconventional monetary
policy to aid credit flow to vulnerable and growth enhancing sectors of the
Nigerian economy. The Committee, therefore, enjoined the Bank to continue
to support and encourage credit delivery at single digit interest rate through
other mechanisms in the interim, while encouraging the banking system to
establish frameworks to increase credit delivery to the employment
generating sectors of the economy. In consideration of available data and
evolving macroeconomic indicators, the Monetary Policy Committee is
committed to revisiting its decisions in the short to medium term as the
fundamentals evolve.
4.0. The Committee’s Decisions
In reaching its decision, the Committee appraised potential policy options in
terms of the balance of risks. The Committee also took note of the gains
made so far as a result of its earlier decisions; including the stability of the
foreign exchange market, the moderation in inflation rate as well as the
restoration of economic growth. The launching of the Food Security Council
by the Federal Government to improve food sustainability is a step in the right
direction. The Committee was concerned about the fiscal distortions
associated with absence of buoyancy between GDP growth and tax
revenue, and urged the fiscal authorities to deploy appropriate corrective
measures to address this phenomenon.
The Committee was of the view that further tightening would strengthen the
impact of monetary policy on inflation with complementary positive effects
on capital flows and exchange rate stability. Nevertheless, it could potentially
dampen the positive outlook for growth and financial stability. However, the
8
Committee is of the view that loosening would strengthen the outlook for
growth by stimulating domestic aggregate demand through reduced cost of
borrowing. This may, however, lead to a rise in consumer prices, generating
exchange rate pressures on the currency in the process. The Committee also
believes that loosening could worsen the current account balance through
increased importation. On the argument to hold, the Committee believes
that key macroeconomic variables have continued to evolve in a positive
direction in line with the current stance of macroeconomic policy and should
be allowed more time to fully manifest.
In consideration of the foregoing, the Committee decided unanimously by a
vote of all members present to retain the Monetary Policy Rate (MPR) at 14.0
per cent alongside all other policy parameters.
Consequently, the MPC voted unanimously to retain the
(i) MPR at 14.0 per cent;
(ii) CRR at 22.5 per cent;
(iii) Liquidity Ratio at 30.0 per cent; and
(iv) Asymmetric corridor at +200 and -500 basis points around the MPR.
Thank you for listening.
Godwin I. Emefiele
Governor, Central Bank of Nigeria
4th April, 2018
