Nigeria May Slip To Another Recession, CBN Raises Alarm

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The Monetary Policy Committee of the Central Bank of Nigeria (CBN) has expressed concern that Nigeria’s celebrated exit from recession may suffer a reversal following recent indications from the nation’s economy.

In a communique read at the end of its 263rd meeting yesterday in Abuja, CBN governor, Godwin Emefiele, who doubles as chairman of the meeting, disclosed that the MPC was “concerned that the exit from the recession may be under threat as the economy slowed to 1.95 percent and 1.50 percent within the first and the second quarters 2018 respectively.”

While the Committee stated that relative stability had returned to the foreign exchange market, going by a robust level of external reserves, it, however, warned that the gains of relative stability in the foreign exchange market, robust level of external reserves, with inflation trending downward for 18th consecutive months achieved previously “appear to be under threat of reversal following the new data which provides evidence of weakening fundamentals.

“In view of the development, the MPC noted that the economy was still confronted with growth challenges and inflationary pressure,” Emefiele said in an address to journalists yesterday, while calling for synergy between the monetary and fiscal policies as availed options for macroeconomic stability.

The committee identified rising inflation and pressure on the external reserves created by the capital flow reversal as the current challenges grow.

“It noted that the inflationary measure has started rebuilding, and capital flow reversal has intensified as shown by the bearish trend in the equities market even though the exchange rate remains very stable,” Emefiele said.

In this regard, the committee urged government to take advantage of the current rising trend in the oil prices to rebuild fiscal buffers, strengthen government finances in the medium term and reverse the current trend of decline in output growth.

The MPC also called on the fiscal authority to intensify the implementation of the Economic Recovery and Growth Plan (ERGP) to stimulate economic activities, bridge the output gap and create employment.

The committee noted that there is disruption to the food supply chain in major food producing states due to poor infrastructure, flooding and the ongoing security challenges, adding that the rise in food prices contributed to the uptake in the headline inflation.

The MPC expressed concern over the potential impact of liquidity injection from election-related spending, and increase in Federal Account Allocation Committee (FAAC) distribution, which is rising in tandem with increase in oil receipts.

The Committee expressed worry at the rising level of non-performing loans in the banking system, traced mainly to the oil sector, and urged the banks to closely monitor and address the situation.

It also expressed concern over the weak intermediation by the Deposit Money Banks and its adverse impact on credit expansion and investment growth by the private sector.

The MPC, however, called on the government to fast-track implementation of the 2018 budget to help jump-start the process of sustainable economy recovery and to facilitate passage of the Petroleum Industry Bill in order to increase the contribution of the sector to the overall GDP.

In its decision, MPC decided by a vote of seven members to retain the MPR at 14 per cent, retain the Asymetric Corridor at +200 and -500 basis points around the MPR, and CRR at 22.5 percent.

Three members voted that the CRR should be raised to 24 percent, which actually signalled that they preferred to tighten, and to retain the liquidity ratio at 30 per cent.

Addressing journalists, Emefiele said the MPC discovered that tightening would tame inflationary measure, tame the reversal of portfolio capital, improve the external reserves and maintain stability in the foreign exchange market.

Conversely, the committee also noted that raising rate would further weaken growth, as credit would become more expensive and non- performing loans will increase further, leading to a deceleration in output.

“In the committee’s opinion, the upward adjustment would not only signal the bank’s commitment to price stability but also its desire to maintain all policy interest rate,” he added.

'Dotun Akintomide
'Dotun Akintomide
'Dotun Akintomide's journalism works intersect business, environment, politics and developmental issues. Among a number of local and international publications, his work has appeared in the New York Times. He's a winner of the National Youth Service Corps (NYSC) Award. Currently, the Online Editor at The New Diplomat, Akintomide has produced reports that uniquely spoke to Nigeria's experience on Climate Change issues. When Akintomide is not writing, volunteering or working on a media project, you can find him seeing beautiful sites like the sandy beaches that bedecked the Lagos coastline.

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