By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-The Nigerian Central Bank on Friday retained the benchmark interest rate at 12 percent with a corridor of +/- 200 basis points around the midpoint to promote economic stability.
The Monetary Policy Committee (MPC) after considering both external and domestic economic conditions at the end of its September 18 and 19 2014 meeting affirmed that it would maintain the current tight monetary environment and further tighten it to help the economy.
Godwin Emefiele, governor of the CBN said that given high levels of bank liquidity, interest rates should be going up, but the bank had to weigh the impact on businesses of higher rates in choosing to hold them at 12 percent.
Similarly, the MPC retained the Cash Reserve Requirement (CRR) of the public sector and private sector at 75 percent and 15 percent respectively.
The MPC expressed satisfaction with the relative stability in theeconomy while also noting the risks that lie ahead. ‘’The key risksinclude: the possibility of capital reversals as the Fed’s QuantitativeEasing (QE) in the US finally ends in October, amidst dwindling oil output and declining oil prices, domestic security challenges and upward trending headline inflation,’’ the MPC said.
Another risks expressed is the high banking system liquidity (current and anticipated) and its implication on exchange rate and inflation, ‘’the policy challenges, the committee noted, would include sustaining the stability of the naira exchange rate, managing the vulnerability to capital flow reversal, building fiscal buffers to insure against global shocks, managing inflation and exchange rate expectations and safeguarding the financial system stability as well as a buildup in election related spending,’’ the MPC affirmed.
In addition, while acknowledging the above mentioned critical risks, the committee’s resolve to maintain status quo was on the promise that it will continue to closely monitor the economic situations as they evolve and shall act at the appropriate time.
Emefiele also, allayed the recent concerns around banks exposure to the oil gas sector, advising that majority of the lending are to the upstream players with strong operations and capacity to earn the USD. It also hinted that the banks, the CBN, the Finance ministry, the NERC and other power stakeholders are collaborating on measures to protect the banking sector exposure to the power sector.
