CBN Cuts CRR to 25%, Holds Benchmark Rate at 13%

230513F1.Godwin-EmefieleConcerned by the seeming shortage of cash in the banking system as well as the fragile macroeconomic environment, the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) on Tuesday reduced the cash reserve requirement (CRR) to 25 per cent, down from 31 per cent in order to ease banking system liquidity.

This is just as the CBN Governor, Mr. Godwin Emefiele, stated that no government agency had been exempted from complying with the treasury single account (TSA).

“The truth is that as far as I am concerned, I have not seen any memo that exempts any institution from the TSA. So, as a result, I will advise those who think that they are exempted to avoid creating confusion. I have not seen any memo on that and for that reason no organisation is exempted. “I will appeal to those affected by the movement of funds to the CBN to please comply,” the CBN governor said while responding to questions from journalists.

However, Emefiele’s position conflicted with the memo from the Office of the Accountant-General of the Federation, which was sent to the CBN last week and  exempted 13 agencies of the federal government from transferring their revenues to the single treasury account.

A senior official of the central bank also acknowledged that the CBN had received the memo, but would not admit it publicly so as not to encourage other federal agencies to seek for exemption from the presidency.

Earlier, Emefiele, who read the communique at the end of the two-day meeting of the MPC in Abuja, said members resolved to retain the monetary policy rate (MPR) at 13 per cent, with the symmetric corridor of 200 basis points around the MPR, and retain the liquidity ratio at 30 per cent.

According to him, the initial market reaction to the decision by JPMorgan to exclude the country from its emerging market index had dissipated, as yields had adjusted to their pre-announcement levels, adding that there might be more effects over the next two months as the economy adjusts to the US bank’s decision. Emefiele said the MPC members observed that despite the implementation of the TSA, the banking system’s liquidity ratio remained moderate.

“There’s been a lot of speculation in the market about the amount that needed to be moved from the banks to the TSA with the CBN. The truth is that the amount that was moved by banks so far is less than what people have been quoting on the pages of newspapers.

“The TSA is an ongoing exercise because the amount at the CBN as at the 16th of September was less than what it is today the 22nd of September.

“The amount keeps growing but what we are saying is that a lot of people had predicted considerable liquidity squeeze created as a result of this. But the data that the committee reviewed between yesterday (Monday) and today (Tuesday) showed that liquidity ratio indeed increased moderately.

“That’s why the committee came up with the conclusions that the impact of the movement of funds from the banks to the CBN in terms of liquidity is sort of moderate,” he said.

Nevertheless, he said there was the urgent need for banks to aggressively support government’s efforts at job creation by channelling available liquidity into target growth-enhancing sectors of the economy such as agriculture and manufacturing.

This, according to him, should be with a view to promoting employment creation through conscious efforts aimed at directing lending to the growth-enhancing sectors of the economy. He also said there was the need for the central bank and commercial banks to strive to reverse the slowing Gross Domestic Product (GDP) trajectory by actively stepping up their efforts at catalysing the economy with substantial new loans to the target sectors.

He stressed that in the face of the prevailing circumstances, the synergy between monetary and fiscal policies remained the most potent option for sustainable growth. Also, Emefiele said the committee further observed that the impact of the persistent decline in global crude oil prices on the fiscal position of government continues to reflect in rising credit to government.

“The committee noted that the overall macroeconomic environment remained fragile. The economy further slowed in the second quarter of the year, making it the second consecutive quarterly less-than-expected performance.

“The committee noted that growth had come under severe strains arising from declining private and public expenditure. In particular, it noted the impact of the non-payment of salaries at the state and local government levels as a key dampening factor on consumer demand.

“Year-on-year headline inflation continued to trend upwards, although the month-on-month measure moderated. Demand pressure in the foreign exchange market remained significant as oil prices continued to decline.

“Arising from these developments, there were indications that some of the banking sector performance indicators could be stressed if conditions worsen further.

“Specifically, the committee noted that liquidity withdrawals following the implementation of the TSA, elongation of the tenure of state government loans, as well as loans to the oil and gas sectors could aggravate liquidity conditions in banks and impair their financial intermediation role, thus affecting economic growth, unless some actions were immediately taken to ease liquidity conditions in the markets,” Emefiele said.

Mindful of the possibility of diversion of any extra liquidity to the foreign exchange market, the CBN governor said the central bank would continue to closely monitor the nature and source of demand pressure in the foreign exchange market to ensure that funds are not diverted to demands for foreign exchange but applied to specific growth-enhancing asset creation lending by banks.

According to him, sectors such as agriculture and MSMEs are for rapid generation of productive employment and wealth creation, and must therefore be painstakingly encouraged. Meanwhile, the federal government is targeting a GDP growth rate of 5.1 per cent in 2016 and aims to sustain the rate through 2018.

This was contained in a draft policy thrust, key performance indicators (KPIs) and targets for the government’s medium-term plan (2016-2020) released by the National Planning Commission (NPC) on Tuesday. The plan has also pegged the exchange rate to the US dollar at N197.07, N205.12 and N208.74 for 2016, 2017 and 2018 respectively. To further achieve macroeconomic stability, it set the overall fiscal deficit to GDP ratio at 1.82 per cent 1.78 per cent and 1.77 per cent in 2016, 2017 and 2018 respectively, while the debt to GDP ratio was set at 11.42 per cent, 11.43 per cent and 11.23 per cent for the three years under review.

Speaking in Abuja at a stakeholders’ validation session on identified priority programmes aligned to the policy thrust, Secretary to the NPC, Mr. Bassey Akpanyung, said the objectives of the plan was to achieve macroeconomic stability and efficient resource management, real sector development and infrastructure development, among others.

He said comprehensive selection criteria including the impact on employment and welfare, inter-linkages with other sectors and projects as well as its alignment with post-2015 development agenda/sustainable development goals (SDGs) would be adopted for admitting projects into the plan.

He directed MDAs to adjust to the work plan, particularly the new zero budgeting policy of the new administration, stressing that project selection and budget implementation would no longer be business as usual especially in the face of oil revenues.

He said representatives of the MDAs would henceforth be guided by the new principles for identifying priority projects under the plan. Represented at the occasion by the Director, Macroeconomic Analysis of the NPC, Mr. Tunde Lawal, Akpanyung also said the envelope budgeting system would no longer be relevant in the annual budgeting process in the country. -Thisday


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