Recession: It’s up to You, CBN Tells Government

• Recession: It’s up to You, CBN Tells Government

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) yesterday admitted that its monetary policy tool has run out of options and that the economy could only get the needed support from effective implementation of fiscal policies.

The verdict formed the basis for the committee’s decision to retain benchmark rate at 14 percent and this confirms yesterday’s exclusive report by The Guardian about impending depression as there is no harmony between monetary and fiscal policies of government.

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence the economy. It is the sister strategy to monetary policy with which the central bank influences money supply.

CBN’s statement sends a wrong signal to the economy,” Dr. Franklin Ngwu, who teaches Economics at the Lagos Business School, said by telephone.

“There are good points to what Governor Godwin Emefiele is saying but there is supposed to be proper synergy between the CBN and government to bring confidence to economic agents and investors.”

Ngwu argues that giving “impression of exhaustion” shows that the CBN and fiscal policy makers are not prepared to bring robust economic policies to address the current economic challenges.

The National Bureau of Statistics (NBS) Monday announced a third negative growth in three quarters. The Gross Domestic Product (GDP) — one of the primary indicators used to gauge the health or size of a country’s economy — for third quarter (Q3) of the year shrank by -2.24 percent after recording -2.06 per cent in the preceding quarter ending June 30, 2016.

The apex bank after its committee’s meeting Tuesday retained all major rates. It kept the Monetary Policy Rate (MPR) — the minimum rate banks borrow from the CBN — at 14 per cent; Cash Reserve Ratio (CRR), 22.5 per cent; and Liquidity Ratio, 30 per cent. 
 The asymmetric window (representing allowance for banks’ lending) was left at +200 and -500 basis points around the MPR. This means the apex bank will lend to banks at 16 per cent and borrow from them at nine per cent.

This is the second time apex bank is keeping main interest rate on hold since the July increase to 14 per cent, as it strengthens its efforts to battle the galloping inflation.Emefiele, said inflation was largely structural and so the CBN’s current tight monetary policy stance combined with an improved agricultural harvest should limit growth prices of goods and services.

He said he would expect fiscal policy to do most of the work of improving Nigeria’s growth performance.“Considering the importance of price stability and being mindful of the limitations of monetary policy in influencing output and employment under the conditions of stagflation, committee decided unanimously in favour of retaining the current stance of monetary policy,” he said.

Meanwhile, the committee has urged government to devise strategies to settle its contractual obligations, which sit across all sectors of the economy.“These accumulated debts have slowed business activities of economic agents; most of who are indebted to the banking system, thus compromising the integrity of the financial system.

“As we are about to enter 2017, there is need for the Muhammadu Buhari-led Federal Government to quickly inflate the economy, there is a most urgent need to pay all outstanding salaries of workers in Federal, State and Local government.

“The economic team should be strengthened with more capable hands with a clear economic direction for the country urgently provided. “For a start, we need to clearly identify our areas of comparative advantage which interestingly is in Agriculture and informal economy and then robustly support each of our six geo-political regions to specialise in two or three. Nigeria is an economy with two limitedly sub-economies —the formal 25 percent and the informal, about 75 percent.”

Ngwu advised the CBN to rethink its approach in policy formulation and implementation while government policies should be evaluated and approved based on their job-creating impact. “Outside good economic policies, of fundamental importance is the need to moderate the tone of governance from the current perception of division, acrimony and negativity to that of hope, unity and prosperity,” said Dr Ngwu.