MPC maintains status quo on rates

…retains benchmark interest at 13.5%

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) retained the benchmark interest rate also known as Monetary Policy Rate (MPR) at 13.5 per centits, at the end of its two-day meeting in Abuja.

The Committee also kept the Cash Reserve Ratio (CRR) and Liquidity (LR) unchanged at 22.5 per ccent and 30 per cent respectively, Godwin Emefiele, the Comittee’s chairman and CBN’s Governor, told pressmen after the meeting.

He explained that the decisions to retain all the key rates was unanimously taken by the committee members after considering developments in the domestic and international economies.
Explaining the reasons why the MPC retained all monetary policy rates, Emiefele at the end of the meeting, stated that the committee noted substantial market increase in 2019, the use of global standing instruction, loan to deposit ration by deposit money banks and restriction of patronage by local companies.
He, however, described the outlook in the domestic economy as promising said recent monetary policy measures by the CBN, including the LDR, the textile intervention fund, had been achieving the desired results, particularly in terms of improving credit to key sectors and productivity of the real sector.
For instance, he disclosed that over the last three months of the LDR policy, banks’ lending to customers, especially those engaging in productive activities had increased by about N1.6 trillion.
He assured that the CBN would continue to encourage banks to lend more to manufacturers, farmers, and other producers to stimulate domestic growth, reduce importation of items that can be produced locally, and by so doing, stimulate the nation’s GDP growth rate.
According to him, sustaining the monetary policy measures should be complemented by approximate fiscal measures as a strategic option of making the domestic environment more supportive to businesses and encourage foreign investors to invest in the economy.
The banker also spoke on the position of the MPC on the closed borders, saying that despite some complaints about the measure, available evidence at the disposal of the CBN showed that the objectives are being achieved.
On the question by journalists about the marginal slide in the foreign reserves and the worrisome inflation rate trajectory, Emefiele said the reserves level should not create fears, pointing out that even when the reserves dropped to about USD23 billion a few years ago, the country was still able to fulfil foreign exchange obligations.
He expressed optimism that the nation’s inflation rate, now being triggered by prices of food items would come down as soon as food production interventions by the apex bank and other supportive fiscal measures by the government begin to impact the various food commodities’ value chains.
The monetary Policy committee reviewed the upside and the downside of the options to tighten, hold or to loosen, while tightening may improve capital inflow, however, it may also stifle output growth.
“Considering the recovery in market rate and growth in domestic rate, there may be gains in medium-term in holding policy at its current position, as the committee noted policies on loan to deposit ratio, which assists in credit in manufacturing and the agricultural sector is gradually improving.
“A such, sustaining the MPR at its current level is crucial, for better understanding of the impetus of growth and protocol variations which will offer a pathway for appraising the effects of lending by the banking industry and caution on inflation.
“The economic indicators such as GDP, non-performing loan ratio, capital ratio, shows that retaining MPR is necessary to sustain improvement. As such in view of the foregoing, the committee retained the monetary policy rate at 13.5 per cent, and to hold other policy parameters constant
“Subsequently, 11 member so the committee present unanimously voted to retain MPR at 13.5 per cent, asymmetric corridor at +200and -500 points around the MPR, retain CRR at 22.5 per cent and retain liquidity ratio at 30 per cent,” he explained.
Considering global output, Emiefele said “Global output growth remains weak due to the impact of the trade war between the United States of America and China, oil vulnerability in the financial market, the downturn in global manufacturing, lingering uncertainty around Brexit which has continued to dampen investment growth in the United Kingdom, this resulted in weakening aggregate demand and supply chain.
“This also evident as South Africa, Russia and Brazil experienced slower growth. Consequently, there was a gross slowdown in global output growth and International Monetary Fund revised global output downward to 3 per cent in October 2019 from the previous 3.2 per cent in July 2019.
“The NBS report shows that real GDP grew by 2.28 per cent from 2.12 in the preceding quarter and 1.98 per cent in the corresponding quarter and cheaply driven by the oil sector which grew by 6.49 per cent while the non-oil sector grew by 1.85 per cent.
“Real GDP projections for 2019 is that it is expected to grow by 2.38 per cent cheaply driven by the non-oil sector. This is due to the continued high level of unemployment, the resurgence of inflation due to December season, high public debt and insecurity”, he added.