The Central Bank released its monetary policy communique on Tuesday following the conclusion of its monetary policy meeting for September. The much awaited meeting had investors curious as to what direction the CBN was going to take the country to.
Nairametrics took a look at the committees communique which apart from reeling out its key decisions also provided an insight into the minds of the people who set monetary policy for the country. Their assessment of the economic situation in Nigeria is worrying going by the following key takeout which we believe gives it the most concerns.
Fragile Economy
The Committee noted that the overall macroeconomic environment remained fragile. The economy further slowed in the second quarter of the year, making it the second consecutive quarterly less-thanexpected performance. The Committee noted that growth had come under severe strains arising from declining private and public expenditures. In particular, it noted the impact of non-payment of salaries at the state and local government levels as a key dampening factor on consumer demand. Year-on-year headline inflation continued to trend upwards, although the month-on-month measure moderated.
Demand for forex is not close to reducing
Demand pressure in the foreign exchange market remained significant as oil prices continued to decline.
Banks are at serious risk
Arising from these developments, there were indications that some of the banking sector performance indicators could be stressed if conditions worsen further. Specifically, the Committee noted that liquidity withdrawals following the implementation of the TSA, elongation of the tenure of state government loans as well as loans to the oil and gas sectors could aggravate liquidity conditions in banks and impair their financial intermediation role, thus affecting economic growth
We could slip into a recession
Having seen two consecutive quarters of slow growth, the Committee recognized that the economy could slip into recession in 2016 if proactive steps were not taken to revive growth in key sectors of the economy
Needs fiscal policy in place to compliment monetary policy
The Committee acknowledged that synergy between monetary and fiscal policies remained the most potent option to sustainable growth.
