In a bid to consolidate on the gains of the recent new foreign exchange policy of the Central Bank of Nigeria, the Monetary Policy Committee(MPC) in its meeting no.108 voted to increase the Monetary Policy Rate(MPR) 200 basis points from 12 percent to 14 percent.
Central Bank of Nigeria (CBN) Governor, Godwin Emefiele who briefed the poress at the end of the meeting in Abuja said that the committee, “recognizing that the Bank lacked the instruments required to directly jumpstart growth, and being mindful not to calibrate its instruments in such a manner as to undermine its primary mandate and financial system stability, in assessment of the relevant issues, was of the view that the balance of risks remains tilted against price stability”.
He also said that the MPC voted to retain the Cash Rediscount Rate(CRR) at 22.5 percent, liquidity ratio at 30 percent and retention of the Asymmetric Window at +200 and -500 basis points around the Monetary policy rate.
He harped on the committee’s recognition of the weak macroeconomic environment, as reflected particularly in increasing inflationary pressure and contraction in real output growth.
The Committee, according to Emefiele, underscored the imperative of coordinated action, anchored by fiscal policy, to initiate recovery at the earliest time, and called on the Federal Government to fast-track the implementation of the 2016 budget in order to stimulate economic activity to bridge the output gap and create employment.
The MPC equally expressed concern over non-payment of salaries in some states and urged express action in that direction to help stimulate aggregate demand, while restating its commitment to measures and deployment of relevant instruments within its purview to complement fiscal policy with a view to restarting growth.
Members of the committee also agreed that the economy was passing through a difficult phase, dealing with critical supply gaps and underscored the imperative of carefully navigating the policy space in order to engender growth and ensure price stability.
He said the meeting was particularly concerned that headline inflation spiked significantly in June 2016, approaching twice the size of the upper limit of the policy reference band, stressing that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging growth.
He noted that while the situation called for obvious tightening of the monetary policy stance, the technical recession confronting the economy and the prospects of negative growth to year-end needed to be factored into the policy parameters.
The committee also noted the current episode of inflation, being largely non-monetary but largely structural, and tightening at this point would only serve to worsen prospects for growth recovery as the Bank had in June 2016, withdrawn substantial domestic liquidity through the foreign exchange market upon introduction of the flexible foreign exchange regime.