Recession turns heat on CBN, as policy makers meet today

economyTougher decisions loom, analysts predict steady rates
The ongoing recession has thrown a challenge to the Central Bank of Nigeria (CBN) and its team, as decisions for the survival of the ordinary man in the street are being expected from today.

With Nigeria’s economy being affirmed recessed in more than a fortnight ago, it has become a puzzle, with more critical thinking needed to fix its fundamentals that have caused many Nigerians to become poorer.

The economy failed to grow in second quarter, but rather recorded losses to -2.1 per cent. There is rising inflation, with gloomy prospects; diverging foreign exchange (forex) rates and increased risk to financial stability, while unemployment figures continues to rise.

Consequently, real income, consumer spending and business investments are collapsing, while companies in response, have continued to cut costs and lay off workers with unemployment rate climbing to 13.3% in Q2 2016, from 12.1% in Q1 2016.

While foreign trade data emerged the only positive macroeconomic within the period, as merchandise trade value grew 49 per cent and reduced trade deficit to 78.9 per cent, the development has been attributed to devaluation of the Naira, rather than increase in trade volumes.

Indeed, Nigerians are now looking up to the fifth session of the Monetary policy Committee meeting this year, which begins today, to balance acts a way to achieve result-oriented policy objectives.

Meanwhile, as the current recessionary shock conventionally calls for a more accommodative fiscal and monetary policy alongside structural reforms to jumpstart growth, analysts said the policy makers are unlikely to tow the path.

The reasons, according of them include the fiscal and forex liquidity challenges, as well as consideration for policy consistency and restoring credibility, while waiting on impacts of budget implementations and truce with Niger-Delta militants.

“Indeed in the last few meetings, the focus of the Committee has largely been on combating inflation to ensure price stability and attract foreign capital inflows. However, with the economy officially in recession with a bleak short term growth outlook, we expect the focus to firmly shift towards growth.

“Nonetheless, with inflation rising by 17.6 per cent in August and negative real interest rate increasing to – 3.6 per cent consequently, it remains unlikely there will be a cut in the benchmark interest rate as such action could risk eroding the credibility of the MPC.

“Moreover, the pursuit of an expansionary monetary policy in order to support growth, in the face of rising inflation and currency depreciations could prove to be counter-productive, particularly in the absence of complementary fiscal policy measures,” the Chief Executive Officer of Time Economics, Dr. Ogho Okiti, said.

Analysts at Afrinvest Securities Limited, in a note to The Guardian at the weekend, pointed out that despite positive steps taken to harmonise rates at various segments of the foreign exchange market, the spread between interbank and parallel market rates continues to widen, reflecting shortages at the official market.

The challenges, they noted, “have implications for asset quality and capital adequacy for banks and consequently financial stability. Non-Performing Loans ratio rose to 10.7 per cent in June 2016 from 4.9 per cent in December 2015 and above the five per cent regulatory threshold.

“Inflation rate has also continued on a steady rise, and this was further confirmed by the recently released August Inflation report, which signalled a rise in Headline Inflation to 17.6 per cent from 17.1 per cent in July, driven by both the food and core sub-indices.”

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Central Bank of Nigeria


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