After several months of retaining the interest rate at 14 percent, the Central Bank of Nigeria (CBN) has finally reduced the monetary policy Rate (MPR) by 50 basis point to 13.5 percent.
The Monetary Policy Committee (MPC) took the decision after its two-day meeting held at CBN headquarters in Abuja.
CBN Governor, Mr Godwin Emefiele who disclosed this while addressing journalists at the end of MPC meeting said members decided by a vote of six out of eleven members to reduce the Monetary Policy Rate (MPR) by 50 basis points.
Two members voted to reduce the MPR by 25 basis points, while one member voted to reduce it by 100 basis points.
He further said that two members, however, voted to hold the MPR at its current level.
Ten members voted to hold all other parameters constant, while a member voted to reduce the Cash Reserve Ratio (CRR) by 100 basis points from 22.5 to 21.5 per cent.
The current reduction of the MPR, the determinant of interest rate, is coming after holding the MPR at 14% for 15 consecutive months.
The last time CBN’s MPC touched the MPR was in July 2016, when it opted to raise it by 200 basis points to 14.0 percent.
Also, at the end of the meeting, almost all the eleven members voted to retain the Cash Reserve Ratio (CRR) at 22.5 percent, retain the asymmetric corridor at +200/–500 basis points, and retain Liquidity Ratio at 30 percent.
The MPR is the rate at which the CBN lends to commercial banks and often determines the cost of borrowing in the economy.
Emefiele also said the Committee further observed that the performance of the monetary aggregates were below their benchmarks, indicating headroom for monetary growth.
“The MPC noted the encumbrances and constraints imposed on fiscal policy and the associated vulnerabilities as it has consistently failed to mobilise enough revenues to support development as enunciated in the ERGP, leaving room for continued debt financing, not previously envisaged. Against this backdrop, it is imperative for monetary policy to provide the much needed leverage to support output growth and employment generation in the country”.
“On a more cautious note, the Committee expressed concern and sympathises with the fiscal authorities, over the growing fiscal deficit, external debt and debt service, and urged the need to closely monitor the public procurement process in order to improve efficiency in public resource management”, Emefiele said.
On financial system stability, the CBN Governor noted the improvements in key financial soundness indicators and commended the Federal Government for the settlement of debt owed to oil marketers, which has considerably, helped in reducing the non-performing loans (NPLs) portfolio of the banking industry.
He therefore urged the Government to expedite action in settling all outstanding contractor-related arrears so as to improve the NPLs position and stabilise the banking system.
