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Published On: Thu, Nov 22nd, 2018

MPC retains interest rate at 14% for 28 months, despite inflation slowdown in Oct.

CBN Governor Godwin Emefiele

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Thursday maintained the Monetary Policy Rate ( MPR) (benchmark interest) at 14 per cent, which it has set since July 2016, despite inflation trending down in October 2018.

While briefing pressmen at the end of the two-day MPC held in Abuja, Mr. Godwin Emefiele, CBN Governor explained that the inflation rate which slowed down in October 2018 was not sustainable.

The Cash Reserves Ratio ( CRR) remained unchanged at  22.5 per cent; liquidity at 30 per cent and Asymmetric corridor at +200 and -500 basis points around the MPR.

The CBN Governor noted that all the 11 members of the committee voted unanimously to retain all policy parameters, which was in line with the projections of most analysts.

He discovered that the MPC considered tightening because it would curb the threat of rising inflation even as the injection from the fiscal authority will provide substantial liquidity.

“He said, “It will rein in inflationary pressures and bring inflation to single digit levels. It will also weaken consumption and raise the cost of borrowing to investors in the domestic economy.

“Loosening could reverse the gains already made with lowered importation, lower bank’s risk appetite and increase non-performing loans.

“Holding will support growth and further moderate inflation, the rate might have lost its effect on the market hence dampened market expectations. to monitor the magnitude of liquidity impact, encourage DMBs (Money Deposit Banks) to increase the flow of credit to the real economy to consolidate economic recovery.”

Emefiele said, “On 2019 elections, we had meeting with the banks . We advised them to be very careful on money laundry issue;  if they are caught on the issue, they will be heavily penalised.

But banks have their rules and criteria; I don’t think banks will do anything that violate the rules. When they go wrong, we will deal with them. I believe they (the banks) will be careful themselves because they have been told that if they are caught on money laundry, they will be heavily penalized.

 “Of course, when you say banks lending to politicians, banks have their acceptance criterial and I don’t think that the banks will do that at this time. Everybody must have learnt their lessons and I believe that the right thing for everybody is to conduct their business carefully. But we as central bank, we are staying behind and watching to make sure that when things go wrong or about to go wrong we will deal with it appropriately.”

On external threats, and the plans of the CBN, the governor explained that the the normalization policy of the federal reserve bank of the United States, he explained that while most of the emerging economies are affected negatively, the impact on Nigeria has been moderated.

“In our view has been somewhat moderated given that we have been able to achieve a stable exchange rate during this period and we have also not lost reserves. But I will say just very marginal that we have lost.”

“The Fed normalization is a policy arising from the process of raising rates so as to attract investors back to the United States.

Those flows that left United States during the quantitative easing, are now returning back and what that means is that the impact has been very bad on the emerging and frontier markets where these funds flowed at the beginning of the quantitative easing. “Most of the emerging markets, we have seen these countries loosing not only their reserves, but they have suffered what I can call a substantial depreciation in their exchange rates.

“We have been ab,e to withstand these shocks as well as suffered very minimal loss in our reserves. Unlike the previous time, 2015-2016 when it adversely impacted negatively on the Nigerian economy, we saw zero inflows. Till today, not withstanding, this fed normalization is going on, we still see reasonable flows into the country rather than a completely dryness flows into the country.

“This has helped and is all as a result of the confidence the investors have had on our policies, because they can read between the lines, they can see there is no surprise element in anything that we have been doing. We have been extremely transparent in the foreign exchange management process, in the way the market has been operated and no one will ever say that the central bank has been intervening in price stability or any sort of those practices and it has helped in boosting investors confidence.

On MTN repatriation issue, the central bank governor said the issue was at the verge of being resolved.

“You must know that issues like this, there are several things involved in this matter such as whether the capital repatriation CCI (Certificate of Capital Importation) was issued in 24 hours, and several others. Of course, these issues were dealt with over the period but the one that appears to have generated the kind of attention that we think it shouldn’t be generating is the issue of repatriation.

Emefiele said: “But let me say something, that it is better  for you to be slow in taking some of these decisions and when you take them you know that they are potent, and rational for those decisions. We were rational for the decisions we took because there were certain documents we expected to be submitted, those document are now been submitted.

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