MPC retains interest rate at 13 per cent

The Monetary Policy Committee (MPC) has retained the nation's interest rate at 13 per cent.

Governor of Central Bank of Nigeria (CBN), Mr Godwin Emefiele, told newsmen during the MPC meeting that the committee was of the view that the rate, which was fixed in November 2014, needed time to have the desired impact on the nation’s economy.

“The committee observed that its decisions of November 2014 needed some time for the effect to crystalise for the economy and therefore voted to retain the current position.

“All 11 members voted to retain the Monetary Policy Rate at 13 per cent and retain the Cash Revenue Ratio on private sector deposit at 20 per cent.

“Eleven members also voted to retain the CRR on public sector deposit at 75 per cent and retain the liquidity ratio at 30 per cent.

“One member, however, voted for asymmetric corridor around the MPR,’’ Emefiele said.

The CBN governor said the nation’s broad money supply grew by 7.29 per cent at the end of December 2014.

He said it marked improvement over the 1.32 per cent increase in 2013 but was lower than the benchmark of 15.02 per cent for 2014.

“During the period, credit to government contracted by 21.8 per cent far below the growth benchmark of 28.4 per cent.

“similarly, the Net Foreign Asset declined by 15.02 per cent, credit to private sector grew by about 12.1 per cent, pushing aggregate domestic credit growth of about 11 per cent.

He said the committee encouraged CBN management to continue to implement measures aimed at providing support to facilitate increased flow of credit to the private sector.

He also said that interest rate in all segments of the money market trended upwards between Nov. 26, 2014 and Jan. 13.

“Interbank core rate opened at 8.98 per cent on Nov. 26, 2014 and closed at 26.15 per cent on Jan. 16.

“Similarly, the Open Buy Back (OBB) and 30-day Nigerian Inter-Bank Offered Rate increased from 10.2 and 11.38 to 23.46 and 11.63 per cent respectively during the period.

“ The significant increase in this rate, particularly for interbank and OBB was mainly due to the tightening measures introduced at the November meeting of the monetary policy committee,’’ Emefiele said.

He said the committee observed that the bearish conditions in the capital market continued as equities market indicators traded downwards within the period under review.

He said market capitalisation decreased by 13.2 per cent from N13.23 trillion to N11.48 trillion during the same period.

“The committee noted that the downward trend had continued into Jan. 2015 as year to date; both have declined by 16.2 and 15.7 per cent respectively.

``Although this phenomenon is driven by global economic conditions in Nigeria in particular, the situation is exacerbated by the declining oil prices as foreign portfolio investors digress from the country.

`` This development calls for closer monitoring and proactive interventions by all institutions concerned.

`` The committee reiterated its commitment to sustaining and deepening measures aimed at fostering confidence and stability in the Nigerian financial system,’’ he noted.

Emefiel said significant pressure persisted in the foreign exchange market during 2014, resulting in further ‘weeping’ of the naira across the three segments of the market.

“The inter-bank selling rate opened at N165.7/US$ and closed at N180/US$, representing a depreciation of N14.73 or 8.63 per cent in the period.

`` While at the BDC segment, the selling rate opened at N170/US$ and closed at N191.50/US$, representing a depreciation of N21.50k or 12.64 per cent.

``Gross official external reserves as at Dec. 31, 2014 stood at $34.25 billion, compared with $42.85 billion at the corresponding period of 2013.

``The decrease in the reserves level was driven largely by increased funding of the foreign exchange market interventions to stabilise the exchange rate in the face of decline in reserve accretion,’’ he said.

Emefiele told newsmen that the country’s external reserves as at end-December 2014 could finance 7.44 months of imports.

He explained that as at December 2014, inflation rate stood at 8.0 per cent, which he said, was within the range of 6.0-9.0 per cent benchmark for inflation forecast by the bank.

Emefiele said the National Bureau of Statistics estimated real Gross Domestic Product growth rate at 6.23 per cent in the third quarter of 2014 compared with 6.54 per cent in the second quarter.

He said the MPC observed the continued dominance of the non-oil sector, particularly services sub-sector, which contributed 2.53 percentage points to the economy.

“We were, however, concerned about the weakening contribution of the oil sector to overall growth, which is now being exacerbated by the rapid drop in oil prices since June 2014.

“In addition, the committee noted that the security challenges in some parts of the country might also be contributing to the dampening effects on overall growth in the country,’’ he said.

The MPC is meant to facilitate the attainment of price stability and to support the economic policy of the Federal Government.

It has the responsibility within the CBN for formulating monetary and credit policies.

The committee is made up of the Governor of the Bank who serves as its chairman, the Deputy Governors of the bank and two members of the Board of Directors of the Bank.

Also on the committee, three members appointed by the President and two members appointed by the CBN governor.