It is no longer news that the Monetary Policy Committee, MPC, of the Central Bank of Nigeria, CBN, left the Monetary Policy Rate, MPR, unchanged at 13.5 per cent, as announced by the Governor, CBN, Mr. Godwin Emefiele. But, below are the details of the apex bank’s decisions.
MPC’s decisions:
.Retained the MPR at 13.5 per cent
.Retained the asymmetric corridor of +200/-500 basis points around the MPR
.Retained the CRR at 22.5 per cent
.Retained the Liquidity Ratio at 30 per cent.
Why MPC retains rates:
The decline in output growth in the second quarter of 2019, partly attributable to the delay in implementation of the 2019 budget.
The broad slowdown across key economies and the response of major central banks to revise their policy rates downwards.
Low consumer, mortgage and corporate credit, aggregate demand, output growth, and high unemployment.
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CBN’s thumb’s up: On price developments, the Committee commended the progressive moderation in consumer prices and urged the Bank to sustain its intervention in the real sector of the economy to reduce the output gap.
The MPC noted the improvements in the financial soundness indicators and urged the Management of the Bank to sustain its regulatory surveillance to ensure continued financial system stability.
The Committee, particularly noted the growth in the size of industry loans from N15.4 trillion in June to N16.23 trillion in September 2019.
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The MPC further noted the increased supply of micro credit to key Micro Small and Medium Enterprises (MSMEs) and efforts through the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) Microfinance Bank to extend the reach of its credit facilities across the country.
The Committee commended the introduction of the Global Standing Instruction (GSI) initiative aimed at de-risking credit in the industry by committing bank customers to repay their loans to banks.
The recent proposed increase in Value Added Tax(VAT) from 5% to 7.2% would improve fiscal revenue and reduce the government’s deficit financing.
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The bond market experienced increased activities reflecting the global preference for fixed income.
Market Capitalization grew by 15.37% to N13.62 trillion on September 13, 2019, from N11.72 trillion at end-December 2018. This increase was attributed to the listing of 2.75 billion ordinary shares by Airtel Africa in July 2019.
Improved performance and resilience of the banking sector, evidenced by the continued moderation in the ratio of Non-Performing Loans (NPLs) from 11.2 to 9.4 per cent in May and August 2019, respectively.
Expectations:
The growth in credit to the private sector remained significantly low, relative to the absorptive capacity of the economy.
The MPC underscored the need to grow consumer, mortgage and corporate credit to drive aggregate demand and ensure a reduction in unemployment and increase in output growth.
Management of the Banks should fast-track the development of the credit scoring system, to 7 promote increase.
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Federal Government should build fiscal buffers through freeing up of national assets, by way of privatization, thereby improving fiscal liquidity.
National Assembly should exercise restraint in increasing the crude oil benchmark in the country, considering the uncertainty in the global oil market.
State Governments should reactivate their respective public works programs that can gainfully employ youths to curb high unemployment and high insecurity
Global Economic Developments:
Output growth across major advanced economies remained subdued, confronted by legacy headwinds, including the subsisting trade war between the US and China, regional hostilities in the Middle-East, rising debt levels, growing uncertainties around BREXIT and increasing political tensions between the US and Iran, including fragilities in the financial markets.
In the EMDEs, output growth remained broadly mixed with some economies performing stronger than others. 2 Consequently, the International Monetary Fund (IMF) revised its projected global growth forecast to 3.2 per cent in 2019 from 3.6 per cent.
Price developments continued to soften across the major advanced and EMDEs as aggregate demand continually weaken, resulting in softening monetary policy by major central banks to address downward trending prices and to strengthen aggregate demand.
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Domestic Economic Developments:
Data from the National Bureau of Statistics (NBS) showed that real Gross Domestic Product (GDP) grew by 1.94 per cent in the second quarter of 2019, compared with 2.10 and 1.50 per cent in the preceding and corresponding quarters, respectively. This mediocre growth, we believe, is consistent with global trends of dampening output growth and was driven mainly by the oil sector, which grew by 5.15 per cent while the non-oil sector grew by 1.64 per cent.
At 57.7 and 58.0 index points, the Manufacturing and Non-Manufacturing Purchasing Managers’ Indices (PMI) grew moderately for the 30th and 29th consecutive months, respectively, in September 2019.
The headwinds to the growth prospects remain high unemployment, rising public debt and heightening insecurity across the country.
The Committee noted the continued moderation in headline inflation (year-on-year) to 11.02 per cent in August 2019 from 11.08 per cent in July 2019, driven by decline in the food and core components to 13.17 and 8.68 per cent in August 2019 from 13.39 and 8.80 per cent in July 2019, respectively. The development in the food and core components of inflation was partly due to improved agricultural production in the current harvest season, supported by the Bank’s sustained intervention in the agricultural sector as well as the continued stability in the foreign exchange market.
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Upward pressure imposed on prices due to rising insecurity in the food producing areas of the country, increased liquidity injection from FAAC disbursements and late budget cycles. It also highlighted the imperative to address the economy’s infrastructural deficits, such as power supply, upgrade of transport and production infrastructure as a means of reducing cost-push inflation.
The broad money supply (M3) grew by 5.65 per cent in August 2019, compared with the level at end of December 2018, annualized to 8.48 per cent, but remaining below the 2019 indicative benchmark of 16.08 per cent. The growth was largely driven by the increase in Net Domestic Credit (NDC), which grew by 24.36 per cent in August 2019 from the level at end of December 2018. The growth in NDC was accounted for by the 4 significant increase in credit to Government, which grew by 94.33 per cent while credit to the private sector grew by 9.36 per cent in August 2019.
In the review period, money market rates oscillated within the standing facilities corridor due to prevailing liquidity conditions in the banking system. The monthly weighted average Inter-bank Call and Open Buyback (OBB) rates increased to 8.00 and 13.37 per cent in August 2019 from 6.52 and 11.01 per cent in July 2019, respectively.
On the domestic economy, output growth in 2019 is expected to peak at 2.1 per cent (IMF), 2.2 per cent (World Bank) and 2.27 per cent (CBN). These forecasts remain underpinned by expectations of favourable oil prices which would lead to higher external reserves, stable exchange rate, moderate inflationary pressure as government increases capital expenditure, including enhanced flow of credit to the private sector to stimulate investment, sustained CBN interventions in the real sector, effective implementation of the Economic Recovery Growth Plan (ERGP), build-up of fiscal buffers, as well as improved security in the country.
Staff projections indicate that real GDP in Q3 and Q4 2019 would average 2.11 and 2.34 per cent, respectively, driven primarily by the non-oil sector. This optimism in growth prospects is anchored on the new momentum of rising credit to the private sector.
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