Re­ces­sion, in­fla­tion, FX may de­fine MPC meet­ing today

Daily Trust - - FRONT PAGE - By Hamisu Muham­mad & Chris Agabi

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

SCHED­ULE

God­win Eme­fiele

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