Emefiele Insists Economy on Track, MPC Retains 14% Interest Rate

Godwin Emefiele
CBN Governor, Mr. Godwin Emefiele

•More items to join CBN’s FX restriction list
•Foreign reserves now $43.28bn

James Emejo in Abuja

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, has allayed fears over the shape of the economy, insisting that using prevailing performance, the nation’s economic fortunes are not in bad shape as being portrayed in some quarters.

He maintained that capital flows into the domestic economy has continued unabated after an initial lull.
Emefiele’s optimistic outlook came as the apex bank’s Monetary Policy Committee (MPC) again retained the Monetary Policy Rate (MPR) at 14 per cent.

The CBN governor, who addressed journalists at the end of the two-day MPC meeting in Abuja, stated that the country has witnessed a convergence of the foreign exchange market among other laudable achievements.
Noting that it was unfair for people to say that the economy has not done well, he added that it was not a fair comment to both government and monetary and fiscal authorities in the country.

For instance, Emefiele disclosed that the country’s external reserves increased to about $43.28 billion as at January 21.
On his assessment of the economy amid the latest accretion to the reserves, Emefiele said: “It is important for me to say if we think of where we are coming from and I like to use some numbers, precisely in September 2008, Nigeria’s reserves was about $62 billion, GDP was 7.2 per cent and inflation was 15 per cent.
“By January 2014, GDP was 6.2 per cent, inflation had trended downward to 8 per cent and reserves were $40 billion.
“Let’s not forget that we were in a period of prosperity in terms of crude prices between 2009 and 2014 with no shut-ins in pipelines, with high crude oil price and yet reserves dropped.

“Now, from about the end of 2014, we started another round of global crisis. The global crisis resulted in stagflation in Nigeria, GDP dropped to 2.79 per cent in 2015, went further and contracted to negative of 1.85 per cent 2016: improved in 2017 to 8.2 per cent and then up.
“We are expecting hopefully that 2018 would end at about 1.8 per cent. Inflation was 15 per cent in 2008, dropped to 8 per cent in 2014 and 2015. It moved up to about 9.5 per cent and by January 2016, it had moved up to 18.7 per cent in 2017,” he said.
“Today, as a result of all the actions and activities of both the monetary and fiscal policies supported by the government reserves is up, went up to $39 billion 2017 and 2018, we closed at 42.5 billion,” he stated.

According to Emefiele, there was a return of confidence by foreign investors as a result of the confidence in the management of the Nigerian foreign exchange market, adding that as at close of work Tuesday, reserves stood at $43.28 billion.”
Continuing, the CBN boss said: “We’ve seen FX stability in the market and some of you would recall that some time in 2016 up to early 2017, of course, we had currency crisis. We had capital flight and we saw a situation where exchange rate even in the black market had moved up in February to N525 and I was told that by March it would hit N1000 and the Lord knows what it would have hit in April or May of 2017.
“But as a result of the actions of the CBN, today all markets- in fact, the bureau de change market had come down to about N360. Today, they are even selling at slightly below N360.

“So we have seen a convergence of the foreign exchange market in Nigeria today. When people sit and say that the economy has not done well, I think it is not a fair comment to be made both on government and monetary and fiscal authorities in the country today,” he argued.
On the decisions of MPC after its meeting, the CBN Governor said the Committee resolved to leave the Monetary Policy Rate (MPR), otherwise known as interest rate at 14 per cent.

It also retained the Cash Reserve Ratio (CRR) at 22.5 per cent and Liquidity Ratio at 30 per cent.
The MPR is the rate at which the CBN lends to commercial banks and often determines the cost of borrowing in the economy.
Emefiele said all 11 members of the MPC voted to keep the policy parameters unchanged from their current levels.
He pointed out that the observed and recent high foreign capital inflow into the Nigerian economy, despite the perception of election risk was evidence of the confidence of the international community in the country’s macroeconomic management and provided a compelling reason for the committee to await clarity on macroeconomic performance after the general elections in February and March 2019.

He stressed that going by the observed risk confronting the economy, including the global and domestic inflationary pressures, which have intensified the risk of currency depreciation, the MPC was of the view that a loosening option was very remote.

According to him, weighing the balance of its judgment on price stability conducive to growth, the MPC felt that tightening would result in the loss of the gains so far achieved, noting that this may drive the banks to re-price their assets; thus increasing the cost of credit as well as elevating credit risk in the economy, adding that it will also worsen the position of non-performing loans of the banks.
The MPC further observed that tightening monetary policy would dampen investments and hamper improvements in output growth, given the already fragile growth performance so far achieved.

According to Emefiele: “The Committee noted with satisfaction, the performance of the economy in 2018, highlighting the achievements in key macroeconomic indicators in the face of global uncertainties and domestic challenges. In particular, it noted the stability in the exchange rate, stable accretion to external reserves, moderation in inflation and the low but gradual improvement in real GDP growth in the last six consecutive quarters commencing from Q2 2017.
“The MPC noted that given global economic conditions and the risk confronting emerging markets and developing economies in recent times, as well as the limited productive capacity of the economy, the managed float foreign exchange management regime of the CBN has delivered the most optimal results when compared with other emerging markets in recent times,” he said.

The committee, he added, considered the risks to the global economy, noting the downward revision in projected global output in 2019, the adverse impact of the trade war between the U.S and its major trading partners, likelihood of lower crude oil prices, impact on capital flows of continued monetary policy normalisation.
“The committee commended the government’s focused expenditure on investment in infrastructure and urged the federal government to sustain the pace towards addressing the infrastructural deficit in Nigeria. “It noted that the immediate impact of this approach on GDP may be slow in coming, but will eventually expand the economy’s productive base, reduce unemployment and increase aggregate demand in a more sustainable manner and over a long period of time,” he said.
Fielding questions from journalists, the CBN governor further disclosed that items that could be comfortably produced locally would soon be added to the list of items banned from accessing foreign exchange.

The apex bank recently hinted that it would increase the number of items currently banned from accessing funds from the FX market to 50 items from the current 42 items.
Reinforcing the bank’s resolve while briefing journalists Tuesday Emefiele said: “The CBN will get even more aggressive to see to it that all food items that can be produced and consumed in Nigeria and are currently being imported into Nigeria: that we would go through our records and once we convince ourselves that these products can be produced in Nigeria, we would place them on the FX restriction list.
“What does that mean? That you cannot source foreign exchange from the Nigerian foreign exchange market to import those items into Nigeria.
“But if you have free dollars, you can bring it in but that you will not be able to even make payments for those items from dollars sourced from the Nigerian foreign exchange market.”

According to him, “This is because we think that the initial policy that the CBN had put in place in the past to cut import and diversify the structure of the Nigerian economy is yielding results and we will continue to be that aggressive.”
The CBN governor also foreclosed any plan to free-float the naira, warning that it could instigate a currency crisis with implications for capital flight and massive depreciation.

The apex bank, he equally said, will be aggressive in supporting smallholder farmers who go into cultivation of wheat in the country.
Also, reacting to a teaser that a presidential candidate had recently criticised some of the CBN policies and indicated he would remove capital control or free-float the Nigerian currency to allow free importation of goods if elected president, the CBN said encouraging imports and free-floating the currency could be damaging to the economy.