CBN warns: Nigeria may slide back to recession,
The Monetary Policy Committee (MPR) of the Central Bank of Nigeria (CBN) on Tuesday warned that the economy may slide back into recession if the the 2018 budget was not properly implemented to create employment and increase the minimum wage.
This is just as seven of the 10 members that attended voted to retain all the policy rates including Monetary Policy Rate (MPR) at 14 per cent; Liquidity Ratio at 30 per cent; Cash Reserve Ratio (CRR) at 22.5 per cent; and Asymmetric Corridor of +200 and -500 basis points around the MPR.
Briefing journalists on the outcome of the meeting which held on Monday and Tuesday,
The Governor of CBN, Mr Godwin Emefiele, who briefed journalists on Tuesday after the MPC meeting, is overly concerned with the deceleration of economic growth which if not stemmed would take Nigeria back to recession.
According to the governor, “It (MPC) noted that inflationary pressures have started rebuilding and capital flow reversals have intensified as shown by the bearish trend in the equities market even though the exchange rate remains very stable.
“The Committee was concerned that the exit from recession may be under threat as the economy slowed to 1.95 and 1.50 per cent in Q1 and Q2 2018, respectively. The Committee noted that the slowdown emanated from the oil sector, with strong linkages to employment and growth in other key sectors of the economy. In this regard, the Committee urged government to take advantage of the current rising oil prices to rebuild fiscal buffers, strengthen government finances in the medium term and reverse the current trend ofdecline in output growth. The MPC also called on the fiscal authorities to intensify the implementation of the Economic Recovery and Growth Plan (ERGP)to stimulate economic activity, bridge the output gap and create employment.
“The Committee noted that disruptions to the food supply chain in major food producing states due to the combined effects of poor infrastructure, flooding and the on-going security challenges resulted in a rise in food prices, contributing to the uptick in headline inflation. The Committee was, however, optimistic that as harvests progress in the coming months, pressure on food prices would gradually recede, while growth enhancing measures would over the medium term have some moderating impact on food prices.
“The MPC expressed concern over the potential impact of liquidity injections from election related spending and increase in FAAC distributions which is rising in tandem with increase in oil receipts.
“The Committee was concerned with the rising level of non-performing loans in the banking system, traced mainly to the oil sector and urged the Bank to closely monitor and address the situation. It also expressed concern over the weak intermediation by Deposit Money Banks and its adverse impact on credit expansion and investment growth by the private sector.
“In view of the above developments, the MPC noted that the economy was still confronted with growth headwinds and inflationary pressures. It reiterated the need for synergy between monetary and fiscal policies as a viable option for macroeconomic stability. The Committee, therefore, identified two likely policy options as tightening or maintaining the status quo ante. Tightening would tame inflationary pressures, stem the reversal in portfolio capital, improve the external reserves position and maintain stability in the foreign exchange market. Conversely, the MPC felt that raising rates would further weaken growth as credit would become more expensive, NPLs would increase further, leading to a deceleration in output. In the Committee's opinion, the upward adjustment would not only signal the Bank's commitment to price stability but also its desire to maintain positive real interest rates.