Though many predictions were made, the CBN surprised analysts by again rejecting devaluation of the naira as widely anticipated.
Here are other revelations from the policy direction meeting:
DELAYED BUDGET 2016 DEPRESSING THE ECONOMY
After the meeting, the CBN monetary policy committee in its communique called on relevant agencies to speed up passage of the 2016 budget as it was fueling the uncertainty depressing the economy.
“The delay in passage of the 2016 Budget has further accentuated the difficult financial condition of economic agents as output continues to decline due to low investment arising from weak demand.”
It urged the national assembly to speed up passage of the 2016 budget “in order to halt the depressing effect of the uncertainty that engulfs the waiting period”.
INCREASED ELECTRICITY TARIFF CAUSING INFLATION
“Core inflation rose sharply for the first time to 11.00 percent from 8.80 per cent in January. Food inflation also inched up to 11.35 per cent from 10.64 per cent in January and 10.59 per cent in December, 2015,” the committee said.
“The rising inflationary pressure was traced to the lingering scarcity of refined petroleum products, exchange rate pass through from imported goods, seasonal factors and increase in electricity tariff.”
FOREX POLICY IS THE NEW UNTOUCHABLE
The message from the presidency and the CBN is loud and clear; no devaluation! The president said on Monday that forex scarcity grieves him, but added that it would be painful and temporary.
The following day, CBN announced that the forex policy remains unchanged.
“The exchange rate at the interbank market opened at N197.00/US$ and closed at N197.00, with a daily average of N196.99/US$ between January 25 and March 14, 2016.
“The committee reiterated its commitment to maintaining a stable naira exchange rate”.
COMMERCIAL BANKS ARE NOT HELPING THE ECONOMY
The committee added that its last MPC decisions to increase liquidity did not achieve its aim, as banks were reluctant to grant credit to sectors in need of them.
“In the first episode of easing, which resulted in injecting liquidity into the banking system, DMBs did not grant credit as envisaged
“The committee further noted that previous efforts to reflate the economy in order to spur growth did not elicit the required response from DMBs.”
FISCAL POLICY REMAINS UNCERTAIN
“Overall economic growth slowed significantly in 2015, particularly in Q4. Apparently, the conditions responsible for the slowdown – uncertainty around fiscal policy, adverse external environment, security challenges in some parts of the country affecting production and distribution of agricultural produce, low electricity supply, fuel shortages, and sluggish growth in credit to the private sector – have continued in the first quarter of 2016.”
THE ECONOMY WORSE NOW THAN IN 2014
The CBN agrees based on statistics that the economy as it was in 2015 and first quarter of 2016 is obviously worse than it was in 2014.
“Real GDP grew by 2.11 per cent in the last quarter of 2015. Overall, growth in 2015 was estimated at 2.79 per cent, compared with 6.22 per cent in 2014.”
THE DECISIONS
In summary, the MPC voted to: “Raise MPR by 100 basis points from 11.00 per cent to 12.00 per cent; Raise CRR by 250 basis points from 20.00 to 22.50 per cent; Retain Liquidity Ratio at 30.00 per cent; and Narrow the asymmetric corridor from +200 and -700 basis points to +200 and -500 basis points.”
The CBN’s major decision was to reduce liquidity in the financial system.
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