CBN retains rates, tasks government on economic plan
CBN Governor, Godwin Emefiele, speaking to journalists yesterday, also admitted that “the market is not meant to be fixed and will move,” which analysts are already seeing as a sign of further market liberalisation.
Specifically, CBN’s Monetary Policy Committee members favoured the retention of benchmark interest rate at 14 per cent; Cash Reserve Requirement, 22.5 per cent; Liquidity Ratio, 30 per cent; while banks will borrow at 16 per cent, but keep deposit at nine per cent.
Meanwhile, the committee has expressed satisfaction on the release of the Economic Recovery and Growth Plan (ERGP). It also sought its speedy implementation with clear timelines and deliverables.
It reiterated optimism that the policy, if properly implemented, coupled with innovative, growth-stimulating sectoral policies, would help fast track economic recovery.The committee in arriving at the decisions, said the stance was necessary as there was slip in oil prices, amid over supply fears and increased activities in United States Shale oil production, which threatens the expected effects of the oil cut deal by producers.
They also noted the increase in the target range of the U.S interest rate hike and the potential spillover effects on global capital flows, which may divert foreign investments against Nigeria.
Emefiele pointed out that inflationary pressures were continuing unabated, despite the recent decline, while the economy remains under recession, justifying the rate decision.
He expressed optimism that interventions in the foreign exchange market would stabilise the battered naira currency, which has been suffering from dollar shortages due to low oil prices.
“We have seen the rates converging and we are strongly very optimistic that both rates will converge further.“The fact that we have done this (intervene) for four to five weeks should tell everyone, and those who doubt the strength of the central bank to sustain this policy, that they are taking a risk and they will lose,” he said.
The Chief Executive Officer of Financial Derivatives Limited, Bismarck Rewane, retorted: “We expected nothing and nothing happened. Of course doing something would have been risky, so they played with caution.
“Yes, the economy is recovering, but slowly and painfully. We should not expect much, because there is no magic for the situation.’’Also, FXTM Research Analyst, Lukman Otunuga, said the decision was no surprise, especially as the nation is in the process of a critical structural transformation that needs little time to allow policy effect.
Executive Director, Finance, BGL Capital Limited, Femi Ademola, said that as predicted, the policy makers retained all rates because it makes no economic sense to increase rate now that foreign exchange rate has been moderating.
On the other, any downward adjustment would also discourage foreign inflow and provide opportunity for more liquidity to speculate at the foreign exchange market.This means that further improvements would only come from sustained intervention by CBN and stable oil price, while the bulk is now on the side of government to implement its fiscal provisions.
“This is the time for them to come with fiscal stimulus in the form of budget implementation. If government is giving contract and fulfilling its part, as well as paying salaries, there would be one less challenge.
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