…OPS, stakeholders kick as MPC retains MPR at 14%
By Uche Usim, Abuja, Isaac Anumihe and Bimbola Oyesola
The Central Bank of Nigeria (CBN) Tuesday, moved to assert its autonomy from the Federal Government when it rejected calls by the Minister of Finance, Kemi Adeosun, and other stakeholders to reduce its benchmark rate at the Monetary Policy Committee meeting in Abuja.
At the end of its meeting yesterday, MPC decided to retain its benchmark interest rate at 14 percent, resisting the finance minister’s call to lower borrowing costs, while urging government to spend more to pull the economy out of recession.
Also retained at the meeting were Cash Reserve Requirement (CRR) at 22.5 per cent, Liquidity Ratio at 30 per cent and Asymmetric Window at +200 and 500 basis point around the MPR.
Finance Minister Kemi Adeosun had on Monday called on the apex bank to lower interest rates to enable government borrow locally to boost the economy.
However, after raising the benchmark rate by 200 basis points to 14 percent in July, the monetary Policy Committee decided to leave it unchanged this month.
CBN governor Godwin Emefiele, said the MPC had considered calls for a rate cut but concluded that the biggest challenges the economy faces were “unsystematic and incomplete structural reforms” which raised “cost, risk and uncertainty”.
The committee members told the government to rather “intensify” infrastructure spending to stimulate growth.
“Members emphasised that improved fiscal activities, especially the active implementation of the 2016 federal budget, and payment of salaries by states and local governments would go a long way in contributing to economic recovery,” Emefiele said.
“In the same direction, the committee urged the fiscal authorities to consider tax incentives as stimulus on both supply and demand side of economic activities,” he added.
President Muhammadu Buhari, took office in May 2015 with a promise to diversify the economy but critics say his government has done little in terms of concrete policies to end Nigeria’s reliance on oil revenues, which have collapsed since 2014.
Commenting on the outcome of the MPC meeting Razia Khan, Chief Economist Africa at Standard Chartered Bank said, “The Central Bank of Nigeria disappointed our expectation for further gradual interest rate tightening.” “While the MPC resisted giving in to political pressure to cut interest rates, and positive real market interest rates provide an important mitigant to the lack of further policy tightening, nonetheless, we expect markets to be disappointed with this outcome,” sahe said.
But another economist commended CBN for shrugging off political pressure.
“CBN’s refusal to bow to government pressure is a notable sign of the institution’s independence,” said John Ashbourne of Capital Economics.
Meanwhile members of the Organisation Private have described the discordant views of the CBN and the Ministry of Finance as an indication that government agencies are not aligned in the process of getting the economy out of recession.
The Manufacturers Association of Nigeria (MAN),for instance, noted that a situation where government agencies and ministries are not working together could spell doom for the economy.
President of MAN, Frank Jacobs, said the OPS was very disappointed that the CBN does not share the same views as the Finance Minister, who believe that more money should be injected into the economy and that rates on loan reduced lower to enable private sector easy access to facilities.
The Director General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, equally opined that for Nigeria to get out of the wood, the political leadership must ensure proper coordination of both the monetary and fiscal policies.
Yusuf stated that though both the infrastructures as well as lower interest rates are desirable to restore the economy, the most important thing now is the reduction in the interest rates.
A university don, Professor Badeyi Sani said as a champion of reflating the economy, if the economy is in recession, there is need to inject liquidity into it by reducing the interest rate. But former deputy governor of CBN, Dr Obadiah Mailafia believes that both Minister of Finance and MPC are wrong. According to him the fiscal authority should not be dictating to the monetary authority. The monetary authority has a delegated power by the parliament to act on behalf of the government. But in a recession they should not leave the interest rate the way it is now. They should reduce the interest rate so as to put back the economy on the path of recovery.
Also reacting development economist, Mr Odilim Enwegbara, noted that there is a need for the Presidency to be making a final pronouncement on the MPR and the CRR because the ball stops at the President’s desk. “He is the Chief Commander of the economy, MPR is lifeblood of the economy because if the cost of doing business is so high, there is no need borrowing,” he said.