Ads

Ads


  • Retains economic parameters
  • Global interest rate needed to stimulate growth –Rewane

The Central Bank of Nigeria’s (CBN)’s Monetary Policy Committee (MPC) yesterday, expressed concern over the increasing fiscal deficit estimated at N2.51 trillion in the first half of 2017 and the crowding out effect of high government borrowing on the private sector.
The committee, for the fifth consecutive time, retained the Monetary Policy Rate (MPR) at 14 per cent; Cash Reserve Requirement (CRR) at 22.5 per cent; Liquidity Ratio at 30 per cent; with the Asymmetric corridor at +200 and -500 basis points around the MPR.
Briefing journalists after the July meeting of the MPC, the CBN Governor, Godwin Emefiele, called for fiscal restraint to check the growing deficit, pointing out that the committee welcomed the proposal by government to issue sovereign-backed promissory notes of about N3.4 trillion for the settlement of accumulated local debt and contractors’ arrears.
“The committee, however, advised the management of the bank to monitor the release process of the promissory notes to avoid an excessive injection of liquidity into the system thereby offsetting the gains so far achieved in inflation and exchange rate stability. “On the outlook for financial system stability, the committee noted that despite the resilience of the banking sector, the prolonged weak macroeconomic environment has continued to impact negatively on the sector’s stability. The MPC reiterated its call on the CBN to sustain its intensive surveillance of deposit money banks’ (DMBs) activities for the purpose of promptly identifying and addressing vulnerabilities.
“The committee also called on DMBs to support economic recovery and growth by extending reasonably priced credit to the private sector,” Emefiele explained.
The CBN boss also urged the Federal Government to speed up the 2017 budget implementation as it will also impact positively on the Economic Recovery and Growth Plan (ERGP).
On the domestic front, Emefiele said the economy was on a path to moderate recovery with a positive short-to-medium-term outlook, premised largely on fiscal stimulus and a stable naira exchange rate. “Inflation expectations also appear sufficiently anchored with the current stance of monetary policy,” he added.
Commenting on the retention of rates, Chief Executive Officer Financial Derivatives Limited, Mr. Bismarck Rewane, said the country needs global interest rates to stimulate growth but this must be done with cautious optimism alluding to the words of the CBN Governor.
“To the ordinary man, the situation is more of waiting and remaining where they are till things change. But the question is, at what point is the CBN going to change direction.40 percent of the narrative of the CBN is on why there is the need to bring interest rates down, while 60 percent is about was for the risk. But the decision at the end is to be more risk averse,’’ he said
He said the worry now is that the CBN has not said when it will exit the current regime of rates it is using, adding that narrative was more of being more risk averse.
In essence, he said holding on to current regime of rates is to maintain exchange rate stability because weakness in exchange rates are the primary cause of inflation, which has been reduced to between 10 and 12 percent. He said economic recovery plan will definitely continue, but at a slow pace in the face of current developments.
“Similarly, Market Capitalisation (MC) rose by 32.84 per cent from N8.83 trillion to N11.73 trillion during the same period. Relative to end-December 2016, capital market indices rose by 26.59 and 26.81 per cent, respectively, reflecting growing investor confidence due to improvements in foreign exchange management. The committee, however, noted the seeming bubble in the capital market and cautioned on the utilisation of the inflows,” he noted.
According to him, total foreign exchange inflows through the CBN increased by 35.41 per cent in June 2017 compared with the previous month. Total outflows, on the other hand, decreased by 12.73 per cent during the same period, as a result of reduced CBN intervention in the interbank foreign exchange market, which also reduced TSA (dollar) payments balances by 61.4 per cent in the period under review.
The positive net flows resulted in an improvement of gross external reserves to $30.30 billion at end-June 2017, compared with $29.81 billion at end-May 2017.

0 comments:

Post a Comment

Popular Posts

Blog Archive

 
Top