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Reduce reliance on oil receipts – MPC C’tte tells FG

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RECENTLY, the Monetary Policy Committee (MPC) of Central Bank of Nigeria concluded its 271st meeting and adopted that the Cash Reserve Requirement (CRR) be altered by 500 basis points from 22.5 to 27.5 percent, while leaving all other policy parameters constant. The committee maintained that the MPR be retained at 13.5 per cent, to retain the asymmetric corridor of +200-500 basis points around the MPR and to retain the liquidity ratio at 30 per cent.

However, the committee noted that Gross Domestic Product (GDP) continued to improve, although slowly. It grew to 2.28 per cent in the third quarter of 2019, compared with 2.12 and 1.81 per cent in the preceding and corresponding quarters of 2018, respectively.

According to the committee, the improvement growth was driven, largely by the performance of the oil sector, which grew by 6.49 per cent, while the non-oil sector grew by 1.85 per cent.

Staff projections estimate real GDP in Q4 2019 and Q1 2020 at 2.20 and 2.35 per cent respectively. The manufacturing and non manufacturing Purchasing Managers Indices (PMI) grew further in December 2019, for the 33rd and 32nd consecutive months, to 60.8 and 62.1 index points respectively. Also the optimism in growth prospects in Q1 2020, and the rest of the year, is anchored on the enhanced flow of credit to the private sector, to improve manufacturing activities, financial and exchange rate stability.

In addition, the bank’s continued intervention in agriculture and small and medium scale enterprises (SMEs) is expected to boost growth. But the committee identified headwinds to the growth, which include uncertainty in the oil market, high unemployment, rising public debt and security challenges across the country.

The committee noted the continued uptick in headline inflation, in December 2019, to 11.98 per cent, from 11.85 per cent in the previous month.

The increase in inflation, which was anticipated, was largely attributable to increase in both the food and core components, by 14.67 and 9.33 per cent in December 2019 from 14.48 and 8.99 per cent in November, respectively. The increase in the food component reflects largely seasonality effect and the impact of the continued insurgency in some food producing areas of the country.

However, the committee observed with delight that over the last six months, the aggregate credit grew by 2.0 trillion and urged the management of the bank to sustain the current momentum of improved flow of credit to private sector, while exploring other options with the fiscal authorities to strengthen the legal framework for the enforcement of credit recovery.

On fiscal operations, the committee applauded the government for the recent signing of the 2020 Finance bill which opens a new vista of opportunities in public financial management, but cautioned that public dept was rising faster than both domestic and external revenue, noting the need to tread cautiously in interpreting the dept to GDP ratio.

Also the committee urged government to gradually reduce reliance on oil receipts and focus revenue diversification through reforms of the tax system, to rationalize fiscal expenditure towards reducing the current excessively high cost of governance and maintained that monetary policy rate at its present level is essential for sustainable support to the growth before any possible adjustments.

The meeting which centered on an environment of sluggish global economic recovery, financial market vulnerabilities and tepid domestic growth was attended by all the 11 members.

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