Comments On Monetary Policy Rate Communique

The Lagos Chamber of Commerce and Industry welcomes the decision by the Central Bank of Nigeria [CBN] to reduce the Monetary Policy Rate (MPR) by 50 basis points from 14% to 13.5 %. This is in consonance with the clamour by the private sector for a relaxation of the tight monetary policy regime in the light of weak consumer demand, fragile economic growth and high rate of unemployment.

We acknowledge that this reduction is not materially significant, but it has a symbolic and signalling value. It is gratifying to note the shift in policy focus by the Central Bank of Nigeria from stability to growth. This is the appropriate policy choice at this time. The reality is that the economy is currently characterized by fragile growth at 2.3%; unemployment at 23.1% and youth unemployment at 36.5%; high dependence on crude oil export; weak diversification and high poverty incidence. The economy needs both monetary and fiscal stimulus at a time like this.

Although, the major monetary policy instruments – CRR and Liquidity Ratio – are still high at 22.5% and 30% respectively, are still high and in tightening mode, the reduction in the MPR has a symbolic and signaling significance. We expect that other monetary instruments will be adjusted over time.
Economic policies are typically characterized by trade offs. Policy choices are driven by what is utmost economic objective at a given point in time. The priority at this time is to stimulate growth.

It is also important to address the mis-alignment between the banking system activities, stimulation of economic growth and promotion of economic inclusion. A prosperous banking system in the midst of a stagnating real economy is not a good commentary on the quality of economic management. The current configuration of the financial system and financial intermediation actions are not in tandem with poverty reduction goals, economic inclusion and the job creation objectives.

Financial intermediation is about ensuring the flow of financial resources from the surplus segments of the economyto the deficit sectors. But this is not the case in the Nigerian economy. A significant portion of credits to the economy is still going to government, the large enterprises and the oil sector which have very weak leakages within the economy. These are fundamental monetary policy challenges that needs to be addressed.

The MPC report indicates that in February, net domestic credit to government grew by 17.2% while credit to the private sector grew by 6.4%. A situation where the government takes a large chunk of the credits in the economy is not a healthy one.

The LCCI commends the stability of the exchange rate over the last couple of months. However, it is imperative to caution that the foreign exchange policy does not inadvertently perpetuate the import dependence character of the economy. We commend the moderation of inflation over the past few months. We request that the challenge of investment risk across all sectors of the economy be addressed. The fiscal and monetary authorities need to work collaboratively to moderate investment risk in the economy. This is very critical to boost the flow of credit to the private sector, boost investment growth and create jobs.

27TH MARCH 2019

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