The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, Tuesday expressed concerns that the worsening insecurity in the country, particularly in food-producing areas is limiting expected outcomes and further fuelling food inflation.
He added that as part of measures to address forex challenges, the apex bank disburses not less than $80 million weekly to banks either for personal travels (PTAs) or business travels or payment of school fees.
He spoke in Abuja at the end of the two-day meeting of the Monetary Policy Committee (MPC), which resolved to leave all monetary policy parameters unchanged.
The MPC retained the Monetary Policy Rate (MPR), otherwise known as interest rate, at 11.5 per cent.
The Lagos Chamber of Commerce and Industry (LCCI) hailed the bank’s decision to retain the 11.5 per cent interest rate.
Inflation, which increased for 18 consecutive months, stood at 17.33 per cent in February.
Emefiele, while reading the communiqué after the MPC meeting, stated that the rise in inflation has continued to be attributed to the increase in both the food and core components of inflation, which rose to 21.79 per cent and 12.38 per cent in February, respectively, from 20.57 per cent and 11.85 per cent in January.
He said: “This persisting uptick in food inflation, however, was the major driving factor to the uptick in headline inflation.
“This was due to the worsening security situation in many parts of the country, particularly, the food-producing areas, where farmers face frequent attacks by herdsmen and bandits in their farms”.
He said while the apex bank was intervening in the agricultural sector, the rising insecurity in some food-producing areas had limited the expected outcomes in terms of supply to the market, thereby contributing to the rise in food prices.
He added that contrary to reports, Nigeria has not altered its foreign exchange management policy.
The clarification came against the backdrop of recent media reports that the CBN had adopted a flexible forex regime.
But Emefiele insisted that the country has not changed from its foreign exchange management policy of managed floating.
He said: “Nigeria still remains on a managed float. What does a managed float regime mean? That the CBN, being the institution that has a core mandate for foreign exchange management in the country, we will run the market, see how the market operates, depending on its reading of how the exchange rate moves in the market, we will come from time to time to intervene in the foreign exchange market.”
The CBN has resolved to leave the interest rate at 11.5 per cent with the asymmetric corridor of +100/-700 basis points around the MPR.
Emefiele said the decision to hold the rates at their current levels, despite rising inflation, followed the need to consolidate on growth, given that the economy had just crawled out of recession.
He said conscious of the persisting inflationary pressure fuelled largely by a continued uptick in food prices, the MPC noted the CBN’s interventions to boost food production, particularly through its various agricultural programmes among other complementary measures, including an increase in disbursement for the dry season agricultural programme to increase output among others.
In arriving at its decisions to hold rates, Emefiele said the MPC was confronted with a dilemma on whether to continue to focus on efforts to stimulate outputs or whether to focus on reining in inflation.
He added that the committee was also worried that the level of unemployment must be addressed swiftly to moderate the restiveness among the populace.
According to him, members believed that given that the exit from recession is fragile, any decision to tighten or rein-in inflation may reverse the fragile recovery and plunge the economy back into recession.
However, he said, the consensus among MPC members was that given that inflation is substantially a supply-side phenomenon, there is a need to continue to focus on consolidation of the recovery process by taking actions that continue to stimulate output growth, create employment but at the same time have an eye on the effort to moderate the inflationary pressure, using the current administrative measures being adopted by the bank in controlling monetary aggregates in the banking system.
He said with consideration of whether to tighten, hold or loosen, therefore, the committee felt that with inflation at a three-year high and price stability being the bank’s core mandate, a contractionary policy stance might be required to tame the rising trend.
But he said MPC members felt that tightening monetary policy would hike the cost of capital and hamper investments required to create employment and to boost economic recovery.
He added that the committee noted the moderate recovery in output growth in the fourth quarter of 2020, associated mainly to the positive impacts of the several monetary and fiscal measures implemented to reflate the economy, following the negative consequences of the COVID-19 pandemic.
Also, reacting to reports of the scarcity of forex in deposit money banks to meet school fees obligations, the CBN governor called on Nigerians not to panic, assuring them that all “foreign currency obligations will be met.”
He said the apex bank disbursed not less than $80 million to the banks weekly either for personal travels (PTAs) or business travels or payment of school fees.
According to him, the CBN is making efforts to decide on how to create a complaints desk for people to report their inability to access forex for school fees payment from banks.
Emefiele said: “I repeat, there is no need for anybody to panic. Luckily we have exited recession; so, that’s one positive. Two, crude prices are moving up; three, we are aggressively focusing on Diaspora remittances; four, we are looking to how to encourage foreign investors into the country.
“So we are very optimistic that there’s enough and there will continue to be enough foreign exchange for people to meet their obligations. We just need people to be patient.
“And I am also saying so again that if you have any foreign currency obligation, your obligations will be met. There’s no need for everybody to rush to the door at the same time, creating panic and giving speculators the opportunity to reap us off.”
On concerns that the prices of food items, particularly rice, have continued to increase despite a bountiful harvest, the CBN governor said the prices had reduced compared to the period of scarcity caused by the COVID-19 pandemic.
MPC said while vaccination against COVID-19 had gained significant grounds in major advanced economies, some emerging market and developing economies were yet to commence vaccination.
Emefiele expressed concern that the global disparity in vaccination could impair recovery to global growth, as barriers to trade and the global supply chain, could remain in place much longer than anticipated to prevent re-infection in countries that have achieved significant vaccination and herd immunity.
Emefiele said the committee noted the disbursement of N107.60 billion to 548,109 farmers cultivating 703,619 hectares of land between Q4 2020 and Q1 2021 to boost dry season output in support of agricultural value chain development.
According to him, total disbursements as of February 2021 amounted to N1.487 trillion under the various agricultural programmes, of which N686.59 billion was disbursed under the Commercial Agricultural Credit Scheme (CACS) and N601.75 billion under the Anchor Borrowers Programmes (ABP) to 3,038,649 farmers to support food supply and dampen inflationary pressures. He added that under the Targeted Credit Facility, the apex bank disbursed N218.16 billion to 475,376 beneficiaries, of which 34 per cent of them are SMEs.
Under AGSMEIS, N111.62 billion was disbursed to 28,961 beneficiaries, 70 per cent of which are in the agricultural sector.
The CBN governor stated that under the Creative Industry Financing Initiatives mainly targeted at youths, N3.19 billion has been disbursed to 341 beneficiaries, of which 53 per cent is to the movie industry.
He said: “Under the National Mass Metering Programme, N33.45 billion has been disbursed to nine distribution companies for the procurement of 605,852 meters, while N89.89 billion has been disbursed under the Nigeria Electricity Market Stabilisation Facility (NEMSF 2) to 11 distribution companies to improve the electricity supply industry in Nigeria.
“Under the N100 billion Health Care intervention Fund, the bank has disbursed N94.34 billion, and is willing to expand the facility, to 85 projects in the pharmaceutical industry, hospitals and state governments for both brownfield and greenfield projects, mostly to expand pharmaceutical drug lines, acquire MRI and other equipment and upgrade laboratories and other hospital services,” he stated.
He said under the N1 trillion manufacturing intervention stimulus, a total of N803.36 billion had been disbursed to 228 projects across various sectors in agro-allied, mining, steel production and packaging industries, amongst others.
“The monthly weighted average inter-bank call and Open Buy Back (OBB) rates fell to 1.80 and 1.50 per cent in February 2021 from 3.50 and 2.30 per cent in January 2020, respectively, reflecting the continued liquidity surfeit in the banking system,” he added.
Meanwhile, the LCCI has described the monetary policy stance of the CBN, which retained policy parameters during its March 2021 meeting as the most appropriate decision the bank could take at the moment.
In a statement by the Director-General of the LCCI, Dr. Muda Yusuf, LCCI said it “appreciates the dilemma which the current stagflation condition presents to the monetary authorities. We note the imperative of striking a balance between stimulating output growth and curbing intensifying inflationary pressures.
“Considering recent macro developments in the economy, holding policy stance seems to be the most appropriate decision at this moment. The CBN’s governor stated at the briefing that the bank’s current policy focus anchors on boosting output growth given the fact that the domestic economy narrowly exited recession in the fourth quarter of 2020.”
He said the LCCI believed that the sustained intervention efforts of the apex bank would enhance credit flows to the real economy, stimulate output growth and ultimately moderate inflationary pressures.
James Emejo in Abuja and Dike Onwuamaeze in Lagos