CBN Warns Of Another Recession As FG Records N2.51trn Deficit In 6 Months

“In consideration of the headwinds confronting the domestic economy and the uncertainties in the global environment, the committee decided by a vote of six to two to retain the Monetary Policy Rate, MPR, at 14 per cent alongside all other policy parameters. Concerns over FG’s N2.51trn deficit in H1 2017 Emefiele said the MPC was seriously worried over the increasing indebtedness of the Federal Government, which resulted into N2.51 trillion deficit in the first half of 2017. He said: “The MPC noted the widening fiscal deficit of N2.51 trillion in the first half of 2017 and the growing level of government indebtedness and expressed concern about the likely crowding out effect on private sector investment. “While urging fiscal restraint to check the growing deficit, the Committee welcomed the proposal by government to issue sovereign-backed promissory notes of about N3.4 trillion for the settlement of accumulated local debt and contractors arrears.”

“Available forecasts of key macroeconomic indicators point to a fragile economic recovery in the second quarter of the year. “The committee cautioned that this recovery could relapse in a more protracted recession if strong and bold monetary and fiscal policies are not activated immediately to sustain it.”

“We understand that a low interest rate will make it easy for people who want to borrow money to borrow money at low rates. We know easing will inject liquidity into the system. “But we are saying, inflation was over 18 per cent when we started. Even today, with inflation at 16 per cent where we are right now, as at June, is still considered very high in the light of studies that have been conducted.”

“In our view, the MPC was correct to avoid the temptation to ease policy prematurely. Given the policy choices open to the CBN, reaffirming its commitment to macroeconomic stability is the most pro-growth intervention that the CBN can make.” “Our base case remains for Nigeria’s policy rate to be kept on hold   at 14 per cent through to the end of 2017, even as year-on-year inflation decelerates further".