The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday warned that the country’s economy could slip into recession by next year if proactive steps were not taken by the Federal Government to revive key sectors of the economy.
It also reduced the Cash Reserves Requirements for Banks from 31 per cent to 25 per cent as well as retained the Monetary Policy Rate at 13 per cent.
The committee also retained the symmetric corridor of 200 basis points around the MPR; and left the Liquidity Ratio unchanged at 30 per cent.
Addressing journalists shortly after the two-day meeting of the committee held at the CBN headquarters in Abuja, the CBN Governor, Mr Godwin Emefiele, noted that the economy had remained fragile owing to various factors.
For instance, he said the country’s Gross Domestic Product Growth Rate recorded a slow growth in the second quarter of this year, making it the second consecutive less-than-expected performance for the current fiscal year.
According to the National Bureau of Statistics, real GDP grew by 2.35 per cent in the second quarter of 2015, a significant decrease when compared with the 3.96 per cent and 6.54 per cent in the preceding quarter and corresponding period of 2014, respectively.
Real GDP growth is projected by the NBS to stabilise at 2.63 per cent in 2015, compared with the 6.22 per cent recorded in 2014.
The committee, according to the governor, however, noted that the impact of non-payment of salaries at the state and local government levels had led to reduction on consumer demand.
He said while year-on-year headline inflation continued to trend upwards, demand pressure in the foreign exchange market remained significant as oil prices continued to decline.
As a result of these developments, Emefiele said there were indications that some of the banking sector performance indicators could be stressed if these conditions worsen further.
Specifically, he expressed worry that liquidity withdrawals following the implementation of the Treasury Single Account, elongation of the tenure of state governments loans as well as loans to the oil and gas sectors could aggravate liquidity conditions in banks and impair their financial intermediation role.
These, he noted, could affect economic growth, unless some actions were immediately taken to ease liquidity conditions in the markets.
He said, “The committee noted that the overall macroeconomic environment remained fragile.
“The committee noted that liquidity withdrawals following the implementation of the TSA, elongation of the tenure of state government loans as well as loans to the oil and gas sectors could aggravate liquidity conditions in banks and impair their financial intermediation role, thus affecting economic growth, unless some actions were immediately taken to ease liquidity conditions in the markets.
“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.”