…as MPC again vote to retain interest rate at 14%
By Etuka Sunday
The Central Bank of Nigeria (CBN) yesterday expressed optimism that the nation’s inflation rate would hit single digit in 2018.
CBN’s Governor, Mr Godwin Emefiele gave the forecast at the Monetary Policy Committee (MPC) metting in Abuja while responding to questions from newsmen on whether there is a possibility of single digit rate inflation as it was years back in the country.
The apex bank Governor said: “the Monetary Policy Committee is working hard on this and with the support of other important policy makers we are optimistic that we will get there. When we talked about exiting the recession in Q2, many people did not believe us. Let’s hope that as we said we gonna hit single digit by the next year, this forecast or progestion will also come to pass.”
On the increased domestic and foreign debts and the stands of the MPC, the CBN governor said: “there is nothing wrong in borrowing and I think I am quoting the Finance Minister who has said there is nothing wrong in borrowing.
“But I think what is important is that how do we deploy the money or most of the funds being borrowed. But I am happy that the specific reasons for these borrowing are targeted at infrastructural development.
“I am sure you all know that most of the borrowing right now is targeted to infrastructure, road development, construction, rail, airport and various other infrastructural development projects that will spur economic activities in the country and ultimately continue to accelerate the growth trajectory of the country.”
Meanwhile, Emefiele while reading out the committee’s decision said, in arriving at 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 in the foreign exchange market and the moderate reduction in inflation and thus extensively deliberated the options regarding whether to hold , tighten or ease the policy stance.
He said, while tightening would strengthen the impact of monetary policy on inflation with complementary effects on capital inflows and exchange rate stability, it nevertheless could also potentially dampen the positive outlook for growth and financial stability.
On the other hand, whereas loosening would strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing, it could aggravate upward trend in consumer prices and generate exchange rate pressures.
The Committee also feels that loosening would worsen the current account balance through increased importation. On the argument to hold, the Committee believes that key variables have continued to evolve in line with the current stance of macroeconomic policy and should be allowed to fully manifest.
He said, the Members noted that the developments in output and inflation in particular required effective close monitoring in order to gain clarity on the medium term optimal path of monetary policy.
“In consideration of the foregoing, the Committee decided by a vote of 8 to 1 to retain the Monetary Policy Rate (MPR) at 14.0 per cent alongside all other policy parameters. One member voted to reduce the MPR by 100 basis points.
“Consequently, the MPC voted to: Retain the MPR at 14.0 per cent; Retain the CRR at 22.5 per cent; Retain the Liquidity Ratio at 30.0 per cent; and
Retain the Asymmetric corridor at +200 and -500 basis points around the MPR,” he said.
Responding to question on why other countries have lower interest rate, Emfiele explained that “between early 2013 and 2014, and around 2015, the CBN set and inflation target of 6-9 percent and this was substantially adhered to but we must realized that those were periods from 2012 and we keep saying five straight years from 2009 to about 2014, crude prices averaged $110 per barrel. Reserve accretion at a time in 2008 stood at $62 billion.
“Exchange rate stability was taken for granted during those periods but unfortunately beginning from the Q1 of 2014, we got hit by three external shocks: the drop in commodity prices, and for us crude price; the geopolitical tension along various trading routes across the world; as well as the US normalization policy. These had tremendous adverse consequences on our economy and we could see that inflation moved from 9 percent in January 2016 to 18.7 percent in January 2017.
“And that is the reason most members of policy committee meeting think it is too high and we are working very hard thinking very seriously and manage for price and monetary stability and see to the fact that inflation is brought down to the traditional level where we have our target of between 6-9 percent. We are working hard at it and I am very optimistic that with the focused and tenacity of the monetary policy committee that this will be achieved,” he said.