MPC worried over FG, States’ failure to save
The Monetary Policy Committee of the Central Bank of Nigeria is worried over the continued failure of fiscal authorities to build economic buffers so as to cushion the threat of declining revenue in the future.
Raising from its third meeting this year, the committee regrets that despite several warning to federal and state governments to save for the rainy day, they continue to spend almost all of the revenues earned by the federation.
While briefing the media on the outcome of the meeting, the Central Bank Governor, Mr. Godwin Emefiele, said that the recent increase in allocations from the Federation Account Allocation Committee to the three tiers of government was an indication that the government was not saving enough.
Emefiele said, “In discussing the economic report presented to the committee, it was observed that as the prices of crude oil increased in 2017 and 2018, the monthly allocations to various levels of government also increased, suggesting that the Federal Government was not conscious of saving for the rainy day.
“The committee therefore advised the fiscal authorities to build the buffers, especially now that the price of crude oil is relatively high.”
Meanwhile the MPC voted in the majority to hold key rates constant, signifying continuation of the tightening measures in the monetary circle.
The committee retained Monetary Policy Rate at 14.0percent Cash Reserve Ratio at 22.5percent; Liquidity Ratio at 30.0percent; and Asymmetric corridor at +200 and -500 basis points around the MPR.
Reading the communiqué, the CBN Governor said, “The committee strongly considered the option of tightening, believing that tightening will curtail the threat of a rise in inflation even as the injection from the fiscal authorities will still provide the economy with substantial liquidity.
“However, the committee was of the view that tightening will trigger the repricing of financial assets by banks and further constrict the real sector from promoting inclusive growth.
“In considering the option of loosening, the committee accessed the potential effect of stimulating aggregate demand through lower cost of capital. This could stimulate consumption and aggregate demand.
“The committee, however, considered its potential relevance, taking into account the expected liquidity injection from the 2018 budget, increased FAAC disbursements and election related spending ahead of 2019 general elections.
“If this crystalizes, it will increase inflationary and exchange rate pressures as well as return interest rates into trajectory.
“Moreover, lowering policy rate may not translate to an automatic reduction in market rate due to poor transmission mechanisms,’’ he said.
The committee also expressed concern over the threat posed by incessant herders and farmers’ crisis in some key food producing states, warning that if left unchecked, it would exert inflationary pressure on the economy.
“The committee took note of the sustained moderation in inflation pressure, especially the headline inflation as well as stability in the foreign exchange market, but expressed concern over the threat posed by incessant herders and farmers’ crises in some key food producing states and the negative impact on some key food supply chains, which would continue to exact pressure on food prices.
“The committee therefore called on the bank to continue to build on the progress already made in arresting the trend to sustain the moderation in food inflation.”