The Governor of the Central Bank of Nigeria, CBN, Godwin Emefiele, on Tuesday said the benchmark lending rate for banks in the country was retained for the seventh consecutive time at 14 per cent to maintain the modest stability in the foreign exchange market.
The CBN governor told journalists at the end of the 114th meeting of the Monetary Policy Committee, MPC, that majority of the members resolved to retain the monetary policy rate, MPR, which is the controlling lending rate to banks, at 14 per cent.
Although he acknowledged that Nigeria’s economy was on the path of moderate recovery, he said the committee also decided to leave the cash reserve ratio, CRR at 22.5 per cent; liquidity ratio at 30 per cent, and asymmetric corridor at +200 and -500 basis points around the MPR.
He said the decision to leave the interest rates unchanged was informed by the need to continue to attract foreign investment inflow to support the foreign exchange market, and to promote economic activity.
Although the CBN governor said low-interest rate was necessary, to make it easy for businesses to borrow at low-interest rates and for easy injection of liquidity into the financial system, the MPC resolved to keep the rate at 14 per cent, to help reverse the inflationary trend in the economy.
He recalled that inflation was at about 18.8 per cent when the CBN decided to freeze lending rate at 14 per cent, pointing out that even with inflation at 16 per cent as at June, it was still considered very high.
Based on studies conducted, and modules developed for computing inflation threshold, Mr. Emefiele said Nigeria’s inflation threshold ranged between an average of 10 and 12 per cent.
“Any inflation rate above the upper limit of 12 per cent would create a negative impact of retarding, rather than stimulating growth, no matter the action taken,” he said.
“The CBN was interested in how to reverse the inflationary trend. We are happy we have done so, by bringing the rate from 18.8 per cent to 16.1 per cent. We are hopeful that it will continue to trend down wards.
“We are not there yet. But, CBN believes easing the interest rate now will pull the real interest rate further to a negative territory, which is a disincentive to investment. This will hurt the stability we have suffered to achieve in the foreign exchange market and a need to ensure that that does not happen,” Mr. Emefiele said.
The governor said the committee expressed concerns about the rising fiscal deficit currently at about N2.51 trillion in the first half of 2017 and the pressure on high government borrowing.
Urging fiscal restraint to check the growing deficit, the CBN governor said the MPC supported government’s proposed issuance of sovereign-backed promissory notes of about N3.4 trillion for the settlement of accumulated local debt and contractors’ arrears.
The Committee, however, urged caution in monitoring the release of the promissory notes to avoid excessive injection of liquidity into the system, which is capable of removing the gains so far achieved in inflation and exchange rate stability.
Source: Premium Times
No comments:
Post a Comment