THE Central Bank of Nigeria, CBN-led Monetary Policy Committee, MPC, has advocated for a review of capital requirement of banks in the country. Folashodun Shonubi, deputy governor, operations directorate, CBN and MPC member, said such review would further strengthen their resilience and boost their capacity to adequately play their role as engine of growth.
Shonubi in his personal note at the last MPC meeting on Friday, January 24, said the fiscal authority needed to rise up to the occasion and effectively support the effort of monetary policy to promote growth. He noted that the persistent shortfall in revenue and increasing recurrent expenditure has made the fiscal space even tighter, while recent trends in the level of deficit and debt accumulation have reached a worrisome state.
According to him, government must urgently embark on an aggressive expenditure rationalisation to significantly reduce recurrent expenditure, free resources to fund expansion, ramp up fiscal stimulus and enhance fiscal buffers. He said deficit financing by the monetary authority must be addressed. He noted that the government must explore opportunities for financing by the banking sector.
“In the external sector, we must sustain our actions, including transparency, to further strengthen investor confidence. There has been a gradual return of investors after the sudden reversal in the last quarter of 2019. Even as we push for growth, our actions must be forward looking and continuously leverage insights from available data. We must take action to address structural and monetary factors to tame persisting inflation and ensure it does not become inimical to growth.
“I believe that food inflation will further dissipate, as domestic supply improves from increased harvest activities. Also, the influence of imported food inflation is expected to wane, through substitution with local alternatives. Monetary influence, on account of excess liquidity has, however, become the culprit that is fueling persisting inflation. Excess liquidity, arising mostly from maturing OMO bills and fiscal operations of government must be sterilised to address the monetary influence on inflation.
“Today, the MPR is more of a signaling rather than referencing parameter. The CRR appear to me as our most potent and direct instrument to mop up liquidity. I am inclined to recommend an increase of the current CRR and believe that as we take these actions, we can maintain monetary and price stability, as well as, continue to facilitate expansion and economic growth,” he said.
Shonubi said despite broad money supply and reserve money being generally below target performance, developments in the financial market underscored the preponderance of liquidity, with implications for monetary pushed inflation.
“Dragging global growth and tepid domestic economic recovery, amidst recent uptick in inflation constitutes a conundrum for monetary policy as we move into 2020. Slow global economic growth has the tendency to weaken demand for Nigeria’s crude oil and cause fiscal fragility, while crawling recovery is certain to worsen unemployment and poverty.
“Though current inflationary pressure is an expected outcome of current strategies to alter the structure of domestic production, rising prices must be tamed. The Bank must continue to take necessary actions to deliver on its primary mandate of maintaining monetary and price stability that is conducive for economic growth, even as benefits of recent measures manifest gradually.
“Developments in the global economy continued to be influenced by the dynamics of China-US trade dispute, changing vulnerabilities in global financial markets, and geo-political tensions, amidst global debt build up and generally sub-optimal inflation in developed economies. Low-inflation, especially among the major developed economies, further heightened the prospect for continued adoption of accommodative policy by central banks in 2020 to tackle slowing growth. Global growth in 2020 is therefore projected to be gradual and steady, at 3.3 percent (IMF WEO, January 2020), as positives of the largely accommodative policy environment in 2019 manifests.
“In the last quarter of 2019, the economy experienced persistent rise in general prices. Headline inflation increased for the 4th consecutive month to 11.98 percent in December 2019, from 11.85 percent in November 2019, on account of the rise in both food and core inflation. Food inflation reached 14.67 percent at end-December 2019, from 14.48 percent in the previous month.
“Importantly, on a month-on-month basis, headline and food inflation trended downward over the last three months, highlighting a gradual dissipation of (food) inflationary pressure. Core inflation, at 9.33 percent in December 2019, trended upward, on month-on-month basis. Similarly, imported food reached 16.04 percent in December 2019 after five consecutive months increase.”