CBN needs more time to strengthen recovery


The CBN’s Monetary Policy Committee (MPC) on Tuesday last week decided to retain the Benchmark interest rates at 14 per cent, alongside other monetary policy parameters.

Mr. Godwin Emefiele, Governor of the CBN, made clear that the decision not to reduce interest rates was borne out of fears that rates’ reduction might reverse the gains achieved in exchange rate stability and inflation rate reduction.

The Monetary Policy Committee (MPC) of the CBN, it is reported, retained the benchmark lending rate and other monetary policy rates against a backdrop of macroeconomic stability.

But one would have thought it was time to initiate a gradual reduction of the 14% interest rate policy after being held since July last year, to tame high inflation and stabilize the exchange rate. This was very much expected by Nigerians who have witnessed considerable drop in inflation, some level of stability in the exchange rate and marginal positive growth in real GDP recorded in the second quarter.

According to experts, a lower interest rate could translate to reduced lending rates, increased access to funds by the real sector and cheaper cost of capital for firms leading to more job opportunities.  Besides, an accommodative monetary policy stance at this time is also said to have the potential to reduce the high cost of debt service by the government which has been crowding out public spending.

On our part we concur to the CBN’s policy stance In our view; we believe a reduced policy rate will not be beneficial for the country’s economy at the moment.  Accordingly, cognizance should be taken of the uncertainty in the global environment, especially the normalization of interest rates in the United States.

Consequently, it is our view that the CBN cannot for now adjust their rates either way, considering the relative stability achieved so far from monetary policies. This policy stance is borne out of the fact that monetary policies alone are not sufficient in advancing the economy of any nation, without a blend of fiscal and monetary policies which are required.

It must also be noted that the primary mandate of the CBN, as spelt out in the CBN Act of 2007, is to maintain price and exchange rate stability. Therefore, the decision by the CBN to hold the rates is dictated by this obligation, of which we give our full support.

It therefore stands to reason that increasing the nation’s fiscal buffers from increasing oil prices and infrastructural spending are needed to further consolidate the gains recorded in an economy coming out of recession.

From the CBN’s perspective, enhancing micro finance lending and running a growth-driven fiscal policy are essential to reposition a post-recession economy for growth and development. It is our view that the effects of fiscal policy actions towards stimulating the economy have begun to manifest as evident in the exit of the economy from the 15-month recession.

Although the economic growth is still fragile, the fragility of the growth makes it necessary to allow more time for the CBN to make appropriate complementary policy decisions to strengthen the recovery.

Secondly, we are convinced that economic activity would become clearer between now and the first quarter of 2018, when growth is expected to have sufficiently strengthened and gains in receding inflation, very obvious.

It should be noted that the current stability in the foreign exchange market was borne out of a series of aggressive interventions by the CBN in rescuing the Naira from the jaws of currency speculators and hoarders. The CBN had injected over 3.6 billion dollars in a series of interventions at the FOREX market, thus narrowing the gap between the official and parallel market rates.

This paper therefore calls on the federal government for the full implementation of the 2017 budget, especially the capital component in line with the government’s Economic Recovery and Growth Plan. The effort will ensure the success of the economic recovery and growth plan.




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