Central Bank keeps rates steady, maintains sunny view of the economy
The immediate benefit of the MPC holding rates is that financial institutions’ lending rates will either remain at their current levels or perhaps slightly reduced.
The sunny view of the economy coming around the bend after a tumultuous 20 months was conveyed by members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria at its 299th meeting yesterday.
The 12-member committee voted to retain monetary policy rate at 27.5 percent, retain the asymmetric corridor around the MPR at +500/-100 basis, retain the Cash Reserve Ratio of Deposit Money Banks at 50 percent and Merchant Banks at 16 percent, as well as retain the Liquidity Ratio at 30 percent.
In other words, fingers have been lifted from the panic button, and monetary authorities are confident the punishing impact of the current government’s policies is now being viewed from the rearview mirror.
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This optimistic view aligns with other emerging (positive) indices, such as the Purchasing Managers Index, which shows higher economic activities with output rising for the second consecutive month, as well as the naira regaining some lost ground in both the official and black markets.
Nigerians have had to endure an excruciatingly tough period of inflation expressed in increased cost of goods and services, stagnated wages, and disappearance of disposal income. Since this administration assumed office, prices have quadrupled and in some cases, increased at even higher rates.
At this meeting, the Monetary Policy Committee noted with satisfaction recent Macroeconomic developments which are expected to positively impact price Dynamics in the near to medium term. These include the stability in the foreign exchange market with the resultant appreciation of the exchange rate and the gradual moderation in the price of Premium Motor Spirit (PMS). Members, however, were not oblivious of the risk of persisting inflationary pressures. Driven largely by food prices.
The Committee noted the recent rebasing of the Consumer Price Index (CPI) by the National Bureau of Statistics (NBS) which Reviewed the weights of items in the consumption basket to reflect current consumption patterns. The Committee further noted that as the Federal Government continues to improve security in food-producing communities, supported by other measures to enhance food supply, food prices are expected to continue to moderate.
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Increasing oil production, which has inched above 1.5mbpd from a low of 900,000bpd a year ago, the foreign reserves, which can support close to 10 months of import of goods and services, were also listed as bulwarks against the headwinds returning.
Food inflation, a major driver of inflation together with transportation exacerbated by the removal of fuel subsidies, was also mentioned as beyond the purview of the MPC.
The immediate benefit of the MPC holding rates is that financial institutions’ lending rates will either remain at their current levels or perhaps slightly reduced. In the immediate, the panicky state of the past 15 months is gradually giving way to confidence that a rebound is around the corner.
Challenges, however, remain.
Food-producing communities long ravaged by insecurity are still not secure enough for many people to return to farms.
Transportation is still a huge challenge, with diesel, which is the main fuel for moving produce from farms to main markets, priced at over ₦1,100 per litre, while the last mile transport from markets to neighbourhood shops and groceries which depend on petrol is over ₦900 per litre.
Adewole Ojo is the Editor-in-Chief of Meiza Nigeria. He can be reached on adewole.ojo@fourpoints.ng.
