By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)- The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Tuesday retained that Monetary Policy Rate (MPR) at 13 percent on worries of weak economic growth outlook following declining oil prices, weak naira and political uncertainties.
Similarly, the MPC retained the Cash Reserve Ratio (CRR) on Private Sector deposits at 20 percent and CRR on Public Sector deposits at 75 percent; and retain the liquidity ratio at 30 percent.
The MPC was of the opinion that it needed time for the previous decisions reached at the January 2015 meeting to take effect.
The key concerns of the committee include the uptick in the headline inflation, caused by exchange rate-induced increases in imported food prices.
According to the MPC, headline inflation remained within the 6.0—9.0 percent band established by the CBN; but noted with concern, the gradual increase in the year-on- year (Y/Y) headline inflation during the first two months of the year from 8.0 percent in December 2014 to 8.2 percent in January and further to 8.4 percent in February 2015.
Another concern is the elevated election spending which resulted in increasing divergence between the inter-bank and bureau-de-change exchange rates and the partial dollarisation of the Nigerian economy.
With these, the committee reiterated that the naira remained the currency of transaction in the economy and advised the CBN to take all possible measures to address this development.
On monetary, credit and financial markets development, the MPC says broad money supply (M2) declined by 1.70 percent in February 2014 over the level at end-December 2014. “This translated to an annualised decline of 10.23 percent compared with the provisional growth benchmark of 15.24 for fiscal 2015. The decline in M2 primarily reflected the contraction of 18.14 and 8.22 percent in net foreign assets (NFA) and other assets (net), respectively, during the period,” the committee noted.
According to the MPC, money market interest rates were relatively volatile in the intervening period but stabilised on average during the first two months of 2015, as banking system liquidity fluctuated.
“Thus, average inter-bank call and OBB rates, which opened at 10.58 and 10.52 percent on 5th and 6th January 2015, closed at 11.00 and 9.23 percent, respectively, on February 27, 2015.
Average interbank call and OBB rates for the period were 15.21 and 18.36 percent, respectively,” the report added.
The MPC further affirmed that following the closure of the Retail Dutch Auction System (rDAS) window of the foreign exchange market on February 18, 2015, the foreign exchange market is now unified. “Consequently, the naira exchange rate opened at N180.1/US$ and closed at N198.0/US$, with a daily average rate of N198.0/US$. This represented a depreciation of N17.9k or 9.04 percent for the period,” the MPC said.
