Journalism of Courage

Easing Will Pull Real Interest Rate Into Negative Territory- Emefiele

…Retains Monetary Policy, Other Policy Parameters.

By Gift Olivia Samuel, Per Second News
The Governor of the Central Bank of Nigeria(CBN),Mr Godwin Emefiele has said that easing the interest rate at this time will pull the real interest rate further to a negative territory which is a disincentive to investment.

Emefiele who made this known on Tuesday while briefing newsmen on the outcome of the 257th Monetary policy Committee (MPC) meeting in Abuja, stressed that with the drop in inflation rate from 18.8 per cent to 16.1 percent, there is hope that interest rate will be reduced soon but Nigeria is not yet ready to tow that path.

While noting that whatever actions taken to stimulate growth when inflation has risen above the 12 percent range will end up retarding growth, he expressed optimism that the reverse in inflation will continue to trend downwards.

According to him; “There are acceptable modules for computing the inflation threshold and these modules have computed the inflation threshold for Nigeria at a range of between 10 to12 percent meaning that when inflation rises above 12 percent, whatever action that is taken to stimulate growth will end up retarding growth.

“We understand that there is need for a low interest rate, but a disincentive to investment will hurt our stability that we have so far achieved in the foreign exchange market and there is a need for us to ensure that these does not happen. That is the rationale behind holding interest rate. We understand the pain but then I assure you that the actions of the MPC will be reflected in whatever direction that we think is good for Nigeria and for Nigerians”.



He reiterated that the Committee expressed satisfaction with the gradual but consistent decline in inflationary pressures in the domestic economy, noting its substantial base effect, continuous improvements in the naira exchange rate across all segments of the foreign exchange market, and considerable signs of improved investments inflows.

Emefiele noted however that the MPC expressed concern over the increasing fiscal deficit estimated at N2.51 trillion in the first half of 2017 and the crowding out effect of high government borrowing.

He also clarified that while urging fiscal restraint to check the growing deficit, the Committee welcomed the proposal by government to issue sovereign-backed promissory notes of about N3.4 trillion for the settlement of accumulated local debt and contractors arrears

He further said that; “The Committee welcomed the move by the fiscal authorities to engage the services of asset-tracing experts to investigate the tax payment status of 150 firms and individuals in an effort to close some of the loopholes in tax collection, towards improving government revenue. However, the Committee expressed concern about the slow implementation of the 2017 Budget and called on the relevant authorities to ensure timely implementation, especially, of the capital portion in order to realize the objectives of the Economic Recovery and Growth Plan”.

The Apex Bank Head added that in consideration of the headwinds confronting the domestic economy and the uncertainties in the global environment, the Committee decided by a vote of 6 to 2 to retain the Monetary Policy Rate (MPR) at 14.0 per cent alongside all other policy parameters.

He said that consequently, 6 members voted to retain the MPR and all other parameters at their current levels while two members voted to ease the stance of monetary policy, leaving the MPR at 14 per cent; the CRR at 22.5 per cent; the Liquidity Ratio at 30.00 per cent; and the Asymmetric corridor at +200 and -500 basis points around the MPR.


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