The Monetary Policy Committee (MPC) of the Central Bank of
Nigeria (CBN) may be under severe pressure over some economic decisions it will
take today...
Consequently, pressures from different financial stakeholders in
the country have continued to mount on the MPC to reduce the Monetary Policy
Rate (MPR) from its current 14 per cent. The MPR, which serves as the benchmark
interest rate in the country’s financial industry has been retained for seven
consecutive MPC meetings at 14 per cent, but financial experts have expressed
divergence opinions over the likely outcome of the MPC meetings, which holds
today and Tuesday in Abuja. The MPC committee had retained the MPR at its last
meeting in July at 14 per cent, Cash Reserve Ratios (CRR) for commercial banks
at 22.5 per cent; and the Liquidity Ratio (LR) at 30 per cent, Asymmetry
corridor at +200 and -500 basis point. But financial analysts and manufacturers
believed that the latest economic report by the National Bureau of Statistic
(NBS), which showed that Nigeria’s Gross Domestic Product (GDP) growth rate for
the second quarter (Q2) 2017 grew by 0.55 per cent (year-on-year), may forced
the committee to leave rate unchanged, because of the insignificance in the
economic growth, so as not to obstruct the retraction in the economic growth.
The Special Adviser on Economic matters to President Muhammadu Buhari, Dr.
Adeyemi Dipeolu, while commenting on the Africa’s largest economy’s exit from
its worst recession in 29 years, agreed that the GDP growth remained fragile.
Speaking on the likely outcome of the meeting, Financial analyst, Afrinvest
West Africa limited, Mr. Robert Omotunde, told our correspondent that the
economy is very fragile; MPC is more likely to maintain status quo with regards
to monetary aggregate rates, because the economy is just beginning to grow
against after contraction in five consecutive quarters. He said, “It will be
too soon to reduce interest rate. Moreso, the CBN is pursuing tightening
monetary objectives.” Also, Prof Leo Ukpong, Dean, School of Business,
University of Uyo and a financial economist, noted that though Nigerian core
inflation rate, which accelerated while the economy was contracting, which was
an unusual trend, since the country has returned to growth, it was expected
that the CBN would lower its interest rate benchmark. “I believe the committee
should drop interest rate, even if it just 50 basis points. If you look at it
historically, they would probably retain the rates, but that would be a bad
policy,” he argued. But with the business environment becoming more
unfavourable in 2017 for manufacturing companies, according to the result of
2017 Manufacturing Sector Survey conducted by NOIPolls and Centre for the Study
of Economies of Africa (CSEA), which was released last week, the clamour for
the scaling down of interest rate has been on the rise. Private sector
operators said it was imperative for the committee to tinker with 14 per cent
interest rate and other monetary aggregates as a way of stimulating economic
recovery, following the country’s exit from recession in the second quarter of
2017. The result of the 2017 manufacturing Sector Survey indicated that 85 per
cent of the 496 manufacturing companies interviewed between February and May
2017 across the six geo-political zones, were operating below 75 per cent of
their installed capacities. According to the survey, 74 per cent of the
manufacturing companies said the business environment has been unsupportive in
2017, against 60 per cent who made the same assertion in the corresponding
period of 2016. Larger percentage of the interviewees (55 per cent) believed
unfavourable foreign exchange rate; and bad road made the operating environment
harsher for them, while 47 per cent stated that it was unavailability of fuel
that worsened the business climate during this period. Research and Advocacy,
Lagos Chamber of Commerce and industry (LCCI), Dr. Vincent Nwani, said that the
loan portfolios of many commercial lenders declined in H1 2017, because many
manufacturers and SMEs shied away from obtaining credits due to lack of access
and high cost of funds in the country. “We hope the MPC will use the National
Bureau of Statistics (NBS) report which says we are out of recession; and we
can only grow a little as a baseline and factor it into their decision. And the
only way is to moderate monetary aggregates not only Monetary Policy Rate
(MPR). “We believe it is time for the private sector to return to the banking
hall to collect loans, that is the only way we will have confidence that the
monetary authorities are not working at variance with other stakeholders to
move the country towards economic recovery, ” he added. In the same vein, Dr.
Adi Bongo, Faculty member, Lagos Business School, said that the country’s
inflationary trend was the backlash of government policies, not due to
increased money supply. He asserted that the government has left interest rate
very high to attract investors to subscribe to its treasury bills and bonds,
which it has been issuing continuously to enable it fund capital projects since
price of crude oil, which is the major source of government revenue, has been
down, though it has appreciated to $55.70 last Friday. The government has been
issuing Treasury bills and bonds at the rate of between 10-18 per cent, which
has encouraged commercial lenders to reduce their loan risk appetite and
embrace the fixed income market, thereby denying the real sector credits.
“Companies margin is about 10 per cent; there was no way they would be able to
borrow as high as 25 per cent. They can’t cover their costs let alone make
profit. This is the real challenge confronting the real sector. This is why
Non-Performing Loans have been increasing. “Maybe, the CBN has to find a way of
tampering with rate, but right now I don’t see them doing anything, especially
now the NBS has said that the economy has turnaround by 0.55 per cent growth.
They may likely continue in the same rationale. So, I don’t see it changing
rates,” the economist opined. Analyst, Futureview Financial Services Limited,
Mr. Andrew Esene, noted that the MPC would use the meeting to further appraise
the Nigerian Autonomous Foreign Exchange window, which was introduced in April
and review the Q2 Gross Domestic Product (GDP) report recently released by the
NBS. “Call for the reduction of MPR won’t be visible at this time, because of
the threat increase liquidity may pose on the naira,” he said. Meanwhile, private
sector credit in Nigeria increased 0.88 per cent to N22.17trillion in July from
N21.98 trillion in June 2017, having reached an all-time high of N23.07trn in
October of 2016 and a record low of NGN440.87 billion in January of 2000.
Foreign Trade in Goods Statistics for Q2 2017 showed that the country’s total
imports’ value was 13.51 per cent higher to N2.6trn in Q2 2017 than Q1 2017 and
9.97 per cent higher than Q2 2016. But Nigeria’s total export value increased
3.2 per cent to N3.10trn in Q2, 2017 compared Q1 2017 and 73.48 per cent better
than Q1 2016. Nigerians imported 16.01 per cent more agricultural goods in Q2
2017 than in Q1 2017; and 61.02 per cent higher than Q 2 2016. The country’s
raw material exports’ value, however, increased by 31.8 per cent in Q2 2017
against the level in Q1 2017.
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