CBN reduces CRR to 25%, warns of economic recession in 2016

AS the Central Bank of Nigeria (CBN) continued with its tightening stance to check inflation by retaining most of the key rates like the Monetary Policy Rate (MPR) at 13 per cent and the liquidity ratio at 30 per cent, it has however reduced the Cash Reserve Requirement (CRR) to 25 per cent from its former level of 31% as a response to the partial mopping of public sector deposits in commercial banks to its coffers under the Treasury Single Account (TSA) fiscal policy of the Federal Government.

The reduction falls below industry watchers’ expectation as some felt the apex bank would move the cash requirement to a single digit level. But the Monetary Policy Committee (MPC), which concluded its meeting yesterday, thought otherwise because of the remaining huge state government’s exposure in commercial banks.

However, the MPC warned that the TSA implementation and other recent fiscal policies introduced by the new administration like the loans reconstruction for states and credit to the energy sector may endanger the Nigerian economy, including pushing it to a recession just by next year if no additional proactive fiscal measures are introduced by the yet-to-be constituted Economic Management Team of President Muhammadu Buhari’s Administration.

The alarm, according to the CBN Governor and Chairman of the MPC, Mr. Godwin Emefiele, had become necessary because of the fragility of the Nigerian economy as a result of the more than anticipated slow growth in the first two quarters of this year.

Emefiele, who gave warning while addressing newsmen at the end of the MPC meeting, said, among others: “The committee noted that the overall macro-economic environment remained fragile. The economy further slowed in the second quarter of the year, making it the second consecutive quarterly less-than-expected performance. The committee noted that growth had come under severe strains arising from declining private and public expenditures.

Having seen two consecutive quarters of slow growth, the committee recognised that the economy could slip into recession in 2016 if proactive steps were not taken to revive growth in key sectors of the economy.”

While advising that one sure way of checking against the impending recession is the need for a synergy between monetary and fiscal policies as this remains the most potent option to sustainable growth, Emefiele noted that the initial market reaction to the decision by JP Morgan to exclude the country from its Government Bond Index for Emerging Economies (GBI-EM) had largely dissipated as yields soon adjusted to their pre-announcement levels.

Meanwhile, the CBN governor yesterday described as “untrue” a news item on the social media that 13 agencies of government have been exempted from the implementation of the Treasury Single Account (TSA).

His words: “There is no exemption for any agency of government. And I can tell you on good authority that the CBN is yet to be informed of any exemption from TSA for any agency. Therefore, all I can say now that that piece of information is not true.”

An online news medium yesterday claimed that the Office of the Accountant-General of the Federation had granted an exemption to 13 MDAs in line with the e-collection and mop-up exercise by the Federal Government.

It also claimed that a circular from the AGF’s office to the Director, Central Bank of Nigeria, Banking & Payments System Department on September 14 made this exception, though it is not public yet.

The news medium said: “By virtue of this circular, the following bodies will not be subject to the TSA: NNPC, PHCN, BOI, Railways, Mortgage Bank, Bank of Agriculture, NIPP, Galaxy Backbone, Ajaokuta Steel, Niger Delta Power, Urban Development Bank, NEXIM and Transcorp Hilton.”