CBN predicts GDP growth by 2.28% as MPC retains MPR at 14%

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Rising from its first Monetary Policy Committee (MPC) meeting in 2019, the 11 member committee voted to retain the Monetary Policy Rate at 14 per cent. The parameters have remained same since July 2016.

The committee averred that the decision was aimed at combating inflation due to foreseen increase in global and domestic risk to the Nigeria’s economy.

Central Bank of Nigeria CBN Governor, Mr. Godwin Emefiele who made this known, Tuesday, when he briefed newsmen on the outcome of the two day meeting, noted that all 11 members were present at the meeting and they all voted to retain the MPR.

All other parameters, including the Cash Reserves Ratio (CRR) at 22.5 per cent, liquidity at 30 per cent and Asymmetric corridor at +200 and -500 basis points around the MPR remained unchanged.

The governor explained what informed the committee’s decisions, saying that market volatility, the continued trade tension between United States of America and China, as well as the Brexit situation in Europe were major concerns.

On the domestic front, the governor listed risks to growth to include the persistent security challenge in the North East, the herdsmen attack in other regions and perceived political risk due to the upcoming general elections.

“In the light of the concerned risk confronting the economy, including the global and domestic inflationary measure which has intensified the risk of currency depreciation, the MPC is of the view that a loosening option is very remote.

“The MPC also felt that tightening will result in the loss of the gains so far achieved and may drive banks to reprise assets, thus increasing the cost of credit, as well as elevating credit risk in the economy.

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“It will also worsen non-performing loans in banks.

“The committee also felt that tightening will dampen investment and hamper improvement in output growth, given the already fragile growth performance so far achieved.

“In the light of the factors, the committee decided to keep the policy parameters unchanged from their current levels by a vote of all 11 members,” Emefiele said.

The CBN governor also disclosed the CBN prediction that the country’s GDP would grow by 2.28 percent as against the IMF prediction by two percent and the World Bank, by 2.2 per cent.

According to him, the forecasts of key macroeconomic variables indicated a positive outlook for the economy in 2019.

“The committee noted the relative stability at both the bureau de change and investors and exporter’s window of the foreign exchange market supported by the bank’s exchange rate market polices.

“It observed with satisfaction, the contribution to stability in the market and the positive implications of the currency swap agreement with China and the inflow of the 2.8 billion dollars Euro Bond.

“The committee also noted the marginal increase in the foreign reserve from 42.45 billion dollars as at the end of December 2018 to 43.28 billion dollars as Jan. 21, 2019.

“The committee recommended that government should focus its expenditure on infrastructure investment and urged the Federal Government to sustain the pace in addressing the infrastructure deficit in the country,” Emefiele said.

The governor also noted that the MPC pointed out that the immediate impact of the approach on GDP would be slow in coming but eventually expanded the economy’s productive base, reduce unemployment and increase aggregate demand in a more sustainable manner.

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He added that the committee acknowledged the strategic role of the private sector in the economy’s growth and remained concerned over the slow growth in credit to the private sector in 2018.

According to him, it was for this reason that the bank, in collaboration with the Nigerian Incentive Based Risk Sharing for Agric Lending planned to establish a National Micro Finance Bank with branches in all states and local government areas.

He said that the main objective of the bank would be to provide low interest rate lending to small-scale businesses in the country.

Emefiele said the committee also raised concern on the country’s debt level, and warned that the country could fast be approaching the pre-2005 Paris Club exit level. The committee, he said, advised the fiscal authorities to expedite action in broadening the country’s tax base to increase revenue.

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