MPC MEETS AND REDUCES CRR TO 25%

The Committee’s Decisions

In consideration of the underlying fundamentals of the economy, particularly the declining output growth, rising unemployment, evolving international economic environment as well as the need to

properly position the economy on a sustainable growth path, the MPC decided by a vote of 7 to reduce the Cash Reserve Requirement (CRR) from 31 per cent to 25 per cent while 3 voted to

hold. By a unanimous vote, the MPC voted to retain the MPR at 13 per cent.

In summary, the MPC voted to:

(i) Reduce the CRR from 31 to 25 per cent;

(ii) Retain the MPR at 13 per cent;

(iii)Retain the symmetric corridor of 200 basis points around the MPR; and

(iv)Retain the Liquidity Ratio at 30 per cent.

Implication

We expect the reduction in CRR from 31% to 25% to moderate the impact of the TSA policy on the banking sector liquidity.

We also expect the naira to continue to be under pressure given the decision by the committee not to devalue.

With naira unchange we do not expect significant inflow of foreign portfolio investment in the coming months which would have serve as a catalyst to drive the financial market upward.

The positive side of leaving naira unchange would be most likely on inflation which will expect to gradually recede as harvest progresses in the coming month.

Overall we continue to await the Federal Government unfolding its economic plans which will complement the CBN Monetary policy.

The Monetary Policy Committee met on 21st and 22nd September, 2015 against the backdrop of lingering uneven recovery in the global economy and slowing domestic growth. In attendance were 10 out of 12 members.

The Committee reviewed developments in global and domestic economic and financial environments in the first eight months of 2015 in order to provide the policy direction for the rest of fiscal 2015.

The Committee noted that the overall macroeconomic environment remained fragile.

Having seen two consecutive quarters of slow growth, the Committee recognized that the economy could slip into recession in 2016 if proactive steps were not taken to revive growth in key sectors of the economy.

The Committee further observed that the impact of the persistent decline in global crude oil prices on the fiscal position of Government continues to reflect in rising credit to government.

The Committee also noted that the initial market reaction to the decision by JP Morgan to exclude the country from its Government Bond Index for Emerging Economies (GBI-EM) had largely dissipated as yields soon adjusted to their pre-announcement levels’ adding that there may be second round effects over the next two months as the economy adjusts to that decision. 

The Committee reiterated its unwavering commitment to naira exchange rate stability despite the  pressures.

Overall, the Committee expressed optimism that business confidence would continue to improve as the Government continues to unfold its economic plans.

The MPC also observed that despite the TSA, banking system liquidity ratio remained moderate. Consequently, the Committee advised on the urgent imperative of banks to aggressively support the efforts of government at job creation by channeling available liquidity into target growth

enhancing sectors of the economy such as agriculture and manufacturing. REPORT BY AAML