news: CBN raises MPR to 14%, retains CRR at 22.50%

As part of efforts to curb inflation and stimulate growth in the economy, the Central Bank of Nigeria (CBN), yesterday, increased its Monetary Policy Rate (MPR)  by 200 basis points to 14 per cent from 12 per cent while it  retained the Cash Reserve Ratio (CRR) at 22.50 per cent and liquidity ratio at 30 per cent. Similarly, it retained  the asymmetric window at +200 and -500 points around the MPR.

Speaking after the Monetary Policy Committee (MPC) meeting in Abuja, CBN Governor, Mr Godwin Emefiele, noted that in taking these decisions, the committee, recognised the weak macroeconomic environment, as reflected particularly in increasing inflationary pressure and contraction in real output growth.
The committee, he said,  expressed concern over the non-payment of salaries in some states  and urged the states to take urgent actions in that direction, saying that that would help to stimulate demand.
“In view of this, the MPC underscored the imperative of coordinated action, anchored by fiscal policy, to  initiate recovery at the earliest possible time. Members called on the Federal Government to  fast-track the implementation of the 2016 budget in order to stimulate economic activity to bridge the output gap and create employment. In the same vein, the MPC expressed concern over non-payment of salaries in some states and urged urgent action in that direction to help stimulate aggregate demand. On its part, and as a complementary measure, the MPC restated its commitment to measures and deployment of relevant instruments within its purview to complement fiscal policy with a view to restarting growth. The Committee also enjoined deposit money banks (DMBs) to partner with government and the bank in this direction, by redirecting credit from low employment generating sectors to those capable of supporting growth, reducing unemployment and improving citizens’ standards of living” he said.
According to Emefiele, the economy is passing through a difficult moment dealing with critical supply gaps. He expressed  concern  that headline inflation rose  significantly, eroding real purchasing power of fixed income earners.
“The MPC was particularly concerned that headline inflation spiked significantly in June 2016, approaching twice the size of the upper limit of the policy reference band.
The committee noted that inflation had risen significantly, eroding real purchasing power of fixed income earners and dragging growth. The MPC was further concerned that while the situation called for obvious tightening of the monetary policy stance, the technical recession confronting the economy and the prospects of negative growth to year-end needed to be factored into the policy parameters” he said.
However, Emefiele, said that CBN remains focused on its intervention to  certain targeted sectors of the economy such as agriculture, manufacturing and mineral sector.
“The central bank of Nigeria development finance focus  remains in place. It would, through target interventions,  continue to support  disbursement of funds through intervention to certain targeted sectors of the economy, particularly agriculture, the mineral sector and those who want to go into new and fresh manufacturing, importation of plants so as to boost manufacturing and industrial output like we said in the course of the communiqué. So, notwithstanding that yes generally you  find , maybe,  by the fact that MPR had moved up by 200 basis points for specific reasons that had  been highlighted in this communiqué, the central bank remains committed to boost the economy  through targeted intervention and through its anchor borrower programmes, not only for rice but also for tomatoes and other agricultural produce where we see potentials for strong comparative advantage in the country” the apex bank governor, said.
Emefiele used the occasion to assure Nigerians and all stakeholders that the Nigerian financial system is strong. But he emphatically noted  that he would not hesitate to remove any director or management  of a bank who undermine the banking system. He said that the fact the CBN removed the management of a bank does not mean that the bank is distressed.
“The state of Nigerian banking system remains strong. Naturally when economies face global shocks like the entire world economy is facing today, financial institutions will have their scratch. No doubt there had been weakening in terms of capital adequacy. There had been weakening in liquidity and indeed weakening in MPR but not to the extent it creates any panic or worry to any stakeholder in the Nigerian banking industry. So, I cease this opportunity to say that the strategic health of Nigerian financial system  is strong at this time” he said.