MPC Forecasts Positive Economic Growth, Cautions Government To Build Buffers Against Economic Crisis

Emefiele

***Retains MPR At 14.0 Percent For 24th Month, Other Policy Parameters

By CLEMENT NWOJI, Abuja

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), has predicted positive economic growth in the second half the year, 2018 but expressed concerns over the Federal Government’s inability to build buffers (saves) in case of future economic crisis.

It noted that although the external reserves stood at 47.2 billion on July, 23, 2018, but the expansionary monthly allocations by the Federation Accounts Allocation Committee (FAAC) portends danger of lack of savings.

The CBN Governor, Godwin Emefiele, disclosed these while briefing Journalists on the communique released at the end of the two-day MPC meeting in Abuja.

These were even as the MPC retained the Monetary Policy Rate (MPR) at 14.0 percent as it has been since July 2016, along side retaining other economic policy parameters: Cash Reserve Requirement (CRR) at 22.5 per cent; Liquidity Ratio at 30.0 per cent; and Asymmetric corridor at +200 and -500 basis points around the MPR.

According to Emefiele, “External reserves stood at US$47.2 billion on July 23, 2018. The Committee was optimistic and expected further increases in the level of external reserves in the near term, citing the favourable crude oil prices.

“The MPC also called on the Federal Government to continue to build fiscal buffers against possible oil price shocks in the future.

“Noting that the rise in the monthly distribution of revenues at the FAAC portend the danger of the absence of reserve buffers to absorb shocks in the future.

He said although the Committee welcome the positive economic growth, but observed that the recovery was still fragile and called for the speedy implementation of the 2018 Federal Government Budget and the Economic Recovery and Growth Plan (ERGP) to strengthen output growth in the Nigerian economy.

The Committee noted the trends in inflation: the year on year at 11.23 percent; Food and Core inflation at 12.98 and 10.40 per cent; increase in month on month inflation to 1.24 per cent in June, from 1.09 per cent in May 2018, and cautioned that indications were that inflationary pressures are rebuilding in the domestic economy.

The MPC articulated risks to domestic economy including: continuing delay in the implementation of the 2018 budget; worsening farmer-herdsmen conflicts in some parts of the country; continued non-payment of workers’ salaries and pensions in some states; rising sovereign debt, as well as uncertainties surrounding the direction of trade, including the external demand for Nigeria’s oil.

Also while forecasting further moderation in inflation, the CBN Governor said the MPC expressed concerns about the downside risks including “the impact of excess liquidity that could arise from the implementation of the approved N9.12 trillion 2018 FGN budget; pre-election spending; anticipated review of salaries and wages; security challenges; and monthly FAAC injections. ”

He said: “Although these could boost aggregate demand, it would equally exert upward pressure on domestic prices for the rest of the year.

“The Committee, therefore, called for a co-ordinated fiscal, monetary and exchange rate policies to stem the upward build-up in price pressures.

“The Committee took note of the sustained moderation in inflationary pressures, especially headline inflation, as well as stability in the foreign exchange market, but expressed concern on the threat posed by incessant herdsmen-farmers crisis in some key food producing states and the negative impact on food supply chains which would continue to exert upward pressure on food prices.

“In discussing the economic report presented to the members, it was observed that as the prices of crude oil rose in 2017 and 2018, the monthly allocation to various levels of government also increased, suggesting that the Federal Government may not be saving adequately for the future.

“The Committee, therefore, advised the fiscal authority to build-up buffers, especially now that the price of crude oil is relatively high.”