The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday called on the Federal Government to address the crisis between farmers and herders, warning that if left unchecked, it would exert inflationary pressure on the economy.
The committee expressed this concern in a communique issued at the end of its two-day meeting held at the headquarters of the CBN in Abuja.
Announcing the decisions of the committee, the CBN Governor, Mr Godwin Emefiele, said the MPC urged the government to arrest the clashes between the farmers and herders so as to sustain the moderation in food inflation.
He stated, “The committee took note of the sustained moderation in inflation pressure, especially the headline inflation as well as stability in the foreign exchange market, but expressed concern over the threat posed by incessant herders and farmers’ crises in some key food producing states and the negative impact on some key food supply chains, which would continue to exact pressure on food prices.
“The committee therefore called on the bank to continue to build on the progress already made in arresting the trend to sustain the moderation in food inflation.”
The governor also said the committee called on the government to increase its fiscal buffers to cushion the threat of declining revenue in the future.
He stated that the recent increase in allocations from the Federation Account Allocation Committee to the three tiers of government was an indication that the government was not saving enough.
Emefiele said, “The MPC commended the approval of the Federal Government’s 2018 budget and called for its accelerated implementation to further support the fragile growth recovery. The committee also called for sustained implementation of the Economic Recovery and Growth Plan to further stimulate output growth.
“The MPC was, however, concerned about the liquidity impact of the 2018 expansionary fiscal budget and increasing FAAC distributions due to rising prices of crude oil as well as the build-up in election related activities.
“In discussing the economic report presented to the committee, it was observed that as the prices of crude oil increased in 2017 and 2018, the monthly allocations to various levels of government also increased, suggesting that the Federal Government was not conscious of saving for the rainy day.
“The committee therefore advised the fiscal authorities to build the buffers, especially now that the price of crude oil is relatively high.”
On the Monetary Policy Rate, the governor stated that the committee decided to retain the current monetary policy stance in view of the liquidity injections that would occur from budget releases and election spending.
According to him, seven out of the 10 members of the MPC present at the meeting agreed to leave the MPR unchanged at 14 per cent.
Emefiele said two members voted that the rates be increased by 50 basis points, while one member voted for an increase by 25 basis points.
He stated that apart from the MPR, the committee also retained the Cash Reserve Ratio at 22.5 per cent.
Also retained were the Liquidity Ratio, which was left at 30 per cent; and the Asymmetric Window, which was unchanged at +200 and -500 basis points around the MPR.
Explaining the reason for the decision, Emefiele noted, “The committee strongly considered the option of tightening, believing that tightening will curtail the threat of a rise in inflation, even as the injection from the fiscal authorities will still provide the economy with substantial liquidity.
“This, the committee believes will rein in inflationary pressure and moderate inflation rate to single digit levels, increase real interest rate, build investors’ confidence and further stabilise the country’s exchange rate.”
On reason for not loosening the monetary policy stance, the governor said the committee accessed the potential effect of stimulating aggregate demand through lower cost of capital.
This, he noted, could stimulate consumption and aggregate demand.
He said, “The committee considered its potential relevance, taking into account the expected liquidity injection from the 2018 budget and increased FAAC disbursements and election related spending ahead of 2019 general elections.
“If this crystalizes, it will increase inflationary and exchange rate pressure as well as return interest rates into trajectory.
“Moreover, lowering policy rate may not translate to an automatic reduction in market rate due to poor transmission mechanisms.”