MPR retained at 12% as CBN reintroduces flexible forex regime
Wed May 25, 2016 11:42:am Business
2.3K By sosa hills
The Central Bank of Nigeria, yesterday disclosed that it has concluded plans to introduce flexible foreign exchange rate management framework in the country.
This came against the back drop of pressure on the Naira and scarcity of foreign currencies in Nigeria.
The apex bank's decision was announced on Tuesday in Abuja by the CBN Governor, Mr. Godwin Emefiele, at the end of the Monetary Policy Committee (MPC) meeting.
The details of the new regime were however not given by the MPC.
Other decisions taken by the committee included the retention of the Monetary Policy Rate (MPR) at 12 percent, Cash Reserve Requirement (CRR) and Liquidity Ratio at 22.5 percent and 30 percent, respectively.
It also retained the Asymmetric Window at +200 and -500 basis points around the MPR.
The MPC observed that "the rising inflationary pressure continued to be traced to legacy factors, including energy crisis reflected in the incessant scarcity of refined petroleum products, exchange rate pass through from imported goods, high cost of electricity, high transport cost, reduction in food output, high cost of inputs and low industrial output.
"The Committee observed that in an economy characterised by high import dependence, the shortage of foreign exchange provided some basis for price increases as currently being experienced.
"The Committee noted that the economy needed to aggressively earn and build up its stock of foreign reserves in order to avoid distortions when faced with severe shocks.
"The Committee further noted that the current inflation trend, being largely a product of structural rigidities and inadequate foreign exchange earnings would continue to be closely monitored, and in coordination with fiscal policy, with a view to addressing the underlying drivers of the upward price movements."
MPC recalled that in July 2015, it had hinted on the possibility of the economy falling into recession unless appropriate complementary measures were taken by the monetary and fiscal authorities.
It regretted that unfortunately the delayed passage of the 2016 Budget constrained the desired fiscal stimulus, thus edging the economy towards contractionary output.
Emefiele said that as a stop gap measure, the Central Bank continued to deploy all the instruments within its control in the hope of keeping the economy afloat.
"The actions, however, proved insufficient to fully avert the impending economic contraction. With some of the conditions that led to the contraction in Q1, 2016 still largely unresolved, the weak outlook for growth which was signalled in July 2015 could extend to Q2.
This came against the back drop of pressure on the Naira and scarcity of foreign currencies in Nigeria.
The apex bank's decision was announced on Tuesday in Abuja by the CBN Governor, Mr. Godwin Emefiele, at the end of the Monetary Policy Committee (MPC) meeting.
The details of the new regime were however not given by the MPC.
Other decisions taken by the committee included the retention of the Monetary Policy Rate (MPR) at 12 percent, Cash Reserve Requirement (CRR) and Liquidity Ratio at 22.5 percent and 30 percent, respectively.
It also retained the Asymmetric Window at +200 and -500 basis points around the MPR.
The MPC observed that "the rising inflationary pressure continued to be traced to legacy factors, including energy crisis reflected in the incessant scarcity of refined petroleum products, exchange rate pass through from imported goods, high cost of electricity, high transport cost, reduction in food output, high cost of inputs and low industrial output.
"The Committee observed that in an economy characterised by high import dependence, the shortage of foreign exchange provided some basis for price increases as currently being experienced.
"The Committee noted that the economy needed to aggressively earn and build up its stock of foreign reserves in order to avoid distortions when faced with severe shocks.
"The Committee further noted that the current inflation trend, being largely a product of structural rigidities and inadequate foreign exchange earnings would continue to be closely monitored, and in coordination with fiscal policy, with a view to addressing the underlying drivers of the upward price movements."
MPC recalled that in July 2015, it had hinted on the possibility of the economy falling into recession unless appropriate complementary measures were taken by the monetary and fiscal authorities.
It regretted that unfortunately the delayed passage of the 2016 Budget constrained the desired fiscal stimulus, thus edging the economy towards contractionary output.
Emefiele said that as a stop gap measure, the Central Bank continued to deploy all the instruments within its control in the hope of keeping the economy afloat.
"The actions, however, proved insufficient to fully avert the impending economic contraction. With some of the conditions that led to the contraction in Q1, 2016 still largely unresolved, the weak outlook for growth which was signalled in July 2015 could extend to Q2.
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