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MPC keeps interest rate unchanged for 30 months; expresses worry over insecurity

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Godwin Emefiele, CBN Governor
Godwin Emefiele, CBN Governor

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has on Tuesday maintained benchmark interest rate otherwise known as Monetary Policy Rate (MPR) at 14 per cent for 30 months  in a bid to tackle accelerating inflation rate in the country.
Addressing journalists in Abuja at the end of  the 265th meeting of the MPC, Godwin Emefiele, the Central Bank Governor,  said all the 11 members were present at the meeting voted unanimously for retention the MPR, which was last changed in July 2016.

The Cash Reserves Ratio ( CRR) also remained unchanged at 22.5 per cent, liquidity at 30 per cent and Asymmetric Corridor at +200 and -500 basis points around the MPR.
Emefiele noted that concerns were raised on the impact of the continued trade tensions between the United States of America and China as well as the Brexit situation in Europe.
On the domestic risk to growth, he mentioned the persistent security challenge in the northeast, the herdsmen attack in other regions, and perceived political risk due to the upcoming general elections.
“In light of the concerned risk confronting the economy, including the global and domestic inflationary measure which has intensified the risk of currency depreciation, the MPC was of the view that a loosening option was very remote.
“The MPC also felt that tightening will result in the loss of the gains so far achieved, noting that it may drive the banks to reprise assets, thus increasing the cost of credit as well as elevating credit risk in the economy.
“It will also worsen non-performing loans in the banks.
“The committee also felt that tightening will dampen investment and hamper improvement in output growth given the already fragile growth performance so far achieved.
“In light of the above factors, the committee decided by a vote of all eleven members to keep the policy parameters unchanged from their current levels,” he said.
On the overall outlook and risks, the CBN governor said forecasts of key macroeconomic variables indicate a positive outlook for the economy in 2019.
He said that while the IMF had forecasted that the country’s GDP would grow by two per cent, the World Bank, by 2.2 per cent, the CBN was of the view that the country would grow by at least 2.28 per cent.
“Committee noted the relative stability at both the bureau de change and investors and exporter’s window of the foreign exchange market supported by the bank’s exchange rate market policies.
“It was observed with satisfaction the contribution to stability in the market and positive implication of the currency swap agreement with China and the inflow of the 2.8 billion dollars Euro Bond.
“The committee also noted the marginal increase in the foreign reserve from 42.45 billion as at the end of December 2018 to 43.28 billion dollars as of Jan 21, 2019.
“The committee recommended that the government should focus its expenditure on infrastructure investment and urged the Federal government to sustain the pace in addressing the infrastructure deficit in Nigeria.
“It noted that the immediate impact of this approach on GDP will be slow in coming but eventually expand the economy’s productive base, reduce unemployment and increase aggregate demand in a more sustainable manner,” he said.
Emefiele said that the committee acknowledged the strategic role of the private sector in the economy’s growth and remained concerned over the slow growth in credit to the private sector in 2018.
He revealed that it was for this reason that the bank in collaboration with the Nigerian Incentive-Based Risk Sharing for Agric Lending plan to establish a National Micro Finance Bank with branches in all states and Local Government areas.
He said the main objective of the bank would be to provide low-interest rate lending to small scale businesses in Nigeria.
The committee, according to Emefiele, also raised concern on the country’s debt level, warning that it could fast be approaching the pre-2005 Paris Club exit level.
In addition, he said that the committee advised the fiscal authorities to expedite action in broadening the country’s tax base to increase its revenue.