Again CBN retains interest rates (MPR) at 11.5%, CRR at 27.5%, Liquidity ratio at 30%
The Central Bank of Nigeria (CBN) at the 278th Monetary Policy Committee (MPC) meeting has retained the monetary policy rates, MPR at 11.5 percent, Cash Reserve Ratio at 27.5 percent, and liquidity ratio at 30 percent.
The CBN held the asymmetric window at +100 and -700 basic points around the MPR. The Committee decided by a vote of 3 members to increase MPR by 50, 75, and 50 basis points respectively, and 6 members voted to hold all parameters constant.
The CBN governor Godwin Emefiele made this know at a media briefing while giving the update of the committee meeting
Why the CBN retained the current rates
The CBN governor Godwin Emefiele reiterated concerns on the activities of persons and groups causing security challenges in the food-producing areas of the country stating that this has contributed to the major uptick in food prices across the country.
He revealed that MPC was confronted with the dilemma of whether to continue to focus on efforts to stimulate outputs or whether to focus on reining in inflation, which (at 17.33 percent) is almost attaining the January 2017 inflation level of 18.72 percent.
MPC was also worried that the level of unemployment must be addressed swiftly to moderate the restiveness among the populace. Again, members were generally of the view that given that the exit from recession is fragile, any decision to tighten or rein-in inflation, may reverse the fragile recovery and return the economy into recession.
The MPC consensus was that, given that inflation is substantially a supply-side phenomenon, there is a need to continue to focus on consolidation on the recovery process, by taking those actions that would continue to stimulate output growth, create employment, but at the same time have an eye on the effort to moderate the inflationary pressure; using the current administrative measures being adopted by the Bank in controlling monetary aggregates in the banking system.
In its consideration of whether to tighten, hold or loosen, therefore, the Committee felt that with inflation at a 3-year high and price stability being the Bank’s core mandate, a contractionary policy stance may be required to tame the rising trend. It nevertheless feels that tightening will hike the cost of capital and hamper investments required to create employment and continue to boost recovery.
On the other hand, MPC thinks that whereas loosening would lower rate and improve access to credit which will drive investment, reduce unemployment and stimulate aggregate demand, it feels that loosening will create excess liquidity, which will intensify demand pressure on the foreign exchange market, thereby leading to further depreciation in the currency.
It, therefore, feels that a hold position that encourages Management to continue to use its various intervention mechanisms to deploy liquidity into employment generation and output stimulating sectors of the economy would be desirable as this would help consolidate the country’s recovery process.”