Recession, inflation, FX may define MPC meeting today
The rising inflation, economic recession and the implementation of the flexible exchange rate policy may likely dominate discussions at the 251st holding Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN), starting today in Abuja.
Experts are hopeful that the meeting would be proffering some solutions on the disturbing indices in the economy.
The MPC had at its meeting in May retained the MPR at 12 per cent with the asymmetric corridor at +200 basis points and -700 basis points and also left the cash reserve requirement (CRR) and liquidity ratio (LR) unchanged at 22.50 per cent and 30 respectively.
The economy is officially in a technical recession says Finance Minister Mrs. Kemi Adeosun. Though economic watchers since May, 2016 had said Nigeria’s economy was already in a recession, the signs for a full blown inflation are showing and becoming more visible by the day as the economy shrinks further.
Nigeria’s real Gross Domestic Product (GDP) growth rate declined to -0.36 per cent in the first quarter of this year (Q1 2016) compared to 2.11 per cent in Q4 of 2015. It may shrink further in Q2 analysts say.
The International Monetary Fund’s (IMF) forecast says that Nigeria’s economy would probably contract by 1.8 per cent in 2016.
Experts have advocated improved spending by government to stimulate commercial activities and rejuvenate the economy. But with falling revenue and federal government’s cautious release of funds, the economy isn’t yet inflated as earlier anticipated.
So far the government has released a capital vote of N247.9 billion, with plans to release an additional N60 billion this week. The fiscal year is half gone and just some N300bn+ has been released out of the N6.06 trillion budget. Obviously budget performance would be less than 50 percent this year and so would the economic performance.
With inflation at 16.8 percent and the naira at N330/$1 following the implementation of the flexible FX regime the meeting is tasked with serious issues to sort.
Commenting, Mr. Moses Azege, an economic analyst said “logically, the CBN should raise the MPR; but the banks are already credit shy so this will have little effect. The CBN has also lost most of its influence on the exchange rate. It is a dilemma, best to abandon the monetary policy tools and go for direct intervention in key sectors like agric, SME and to some extent, power. But even power is in the hands of the Avengers. The CBN should give grants to key manufacturers in select sectors like Miva Rice,” he said.
Mr. Rislanudeen Muhammad, the former acting managing director/CEO, Unity Bank, said it is “Typically in such situation (inflation), that fiscal authorities are expected to adopt expansionary budget aimed at stimulating the economy and steering it away from stagflation and recession.
“The 2016 budget is rightly anchored on that but unfortunately implementation, of especially the capital aspect, has become almost impossible due in large part to further erosion in projected income from oil proceeds as well as nonactualisation of foreign loans that are supposed to be used in dealing with the budget deficit of N2.2 trillion.
“Without such requisite stimulation, the economy may further contract as recently projected by IMF.”
Also, Mr. Ferdinand Ikya, a Birmingham West Midlands based accountancy and finance expert said “the aim of any policy at this point should be to stimulate growth, through production and demand. Don’t forget that growth comes with some inflation. The least the CBN should do at this point is to take actions that limit availability of loanable funds. Even the financial situation of most banks now will not withstand liquidity contraction measures (OMO, CRR etc).
“The CBN will not take panic actions. Short term actions will be avoided. Inflationary trends will flatten around August with foodstuffs from farms expected. I am not expecting drastic measures since economic fundamentals in medium to long term look strong,” he said. FLIGHT