By Tony Obiechina, Abuja
The Central Bank of Nigeria (CBN), has again retained the Monetary Policy Rate (MPR) at 12.5 percent while other policy parameters remain constant.
The CBN Governor, Mr Godwin Emefiele who announced this at the end of the Monetary Policy Committee (MPC) meeting in Abuja on Monday, said
the Committee decided by a majority vote to retain the Monetary Policy Rate (MPR) at 12.5 per cent.
According to him “the Committee decided by a vote of eight members to Hold and two members voted to Reduce MPR. All members voted to retain all other policy parameters”.
Emefiele further disclosed that the MPC voted to retain the MPR at 12.5 per cent; the asymmetric corridor of +200/-500 basis points around the MPR; the CRR at 27.5 per cent; and retain the Liquidity Ratio at 30 per cent.
The Governor explained that before arriving at its decision the Committee reviewed the policy options before it, argueing that “the option of tightening at this time would contradict the noble initiative of expansion of affordable credit to the real sector”.
He pointed out that this would heighten the cost of production which will translate to higher prices of goods and services and harder economic condition for people.
“On the other hand, loosening monetary stance would provide the desired succour for stimulating output growth and rapid recovery, but with implications for domestic private investment and capital mobilisation to support the huge domestic financing gap.
“Further cut in MPR may not necessarily lead to a corresponding decrease in market interest rate, considering the current economic challenges. The Committee was also mindful of the cut in policy rate at the last MPC meeting and the need to allow time for the transmission effect to permeate the economy”, the Governor said.
Emefiele stressed that “Given the plethora of monetary and fiscal measures recently deployed to address the impending economic crisis, following the COVID-19 outbreak, it would be a relatively cautious option to hold, in order to evaluate the effectiveness of these tools at addressing the current challenges, particularly with the mounting uncertainties within the domestic economy, as well as the external vulnerabilities”.
He said that after reviewing the three options, the MPC noted that the imperative for monetary policy at the May 2020 meeting was to strike a balance between supporting the recovery of output growth and reducing unemployment while maintaining stable prices.
According to him, he Committee noted that “the economic fundamentals have marginally improved by the end of June 2020, following the gradual pick-up of economic activities as the positive impacts of the various interventions permeate into the economy.
“As a result, the Committee noted that the earlier downward adjustment of the MPR by 100 basis points to 12.5 per cent to signal the loosening monetary policy stance is yielding positive impact as credit growth increased significantly in the economy.
“The Committee also noted the positive impact of the various fiscal and monetary interventions on households, SMEs and manufacturing sectors. The Committee also noted that increasing MPR at this stage will thus be counter-intuitive and will result in upward pressure on market rates and cost of production”, he added.
