The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) yesterday reduced its benchmark interest rate, the Monetary Policy Rate (MPR) to 12.5 percent from 13.5 percent, in a bid to stimulate the economy ahead the projected economic recession arising from the impacts of Coronavirus, COVID-19, pandemic.
The Committee, however, retained the Cash Reserve Ratio (CRR) and the Liquidity Ratio (LR) at 27.5 percent and 30 percent respectively. The Committee also retained the Asymmetric band at plus 200 basis points and minus 500 basis points around the MPR. CBN Governor, Mr. Godwin Emefiele, who disclosed these at the end of the MPC meeting held yesterday, said that seven members of the committee voted to cut the MPR by 100 basis points, while two members voted for a 150bps rate cut, with one member electing for a 200bps rate cut.
The decision of the MPC, Emefiele stated was necessitated by the need to stimulate growth and recovery of the economy in the face of the impacts of the COVID-19 challenges. He explained, “The MPC observed the weakening of the global macroeconomic environment due to the adverse impact of COVID-19 and drop in crude prices which has resulted in negative outputs for most economies,” “Excess liquidity engendered by loosening may overshoot the economy’s capacity and accelerate inflationary pressures, it nevertheless feels that given the slow rate of acceleration of inflation, the accommodative stance will stimulate aggregate demand and supply in a short term. “This is because an accommodative stance through a lowering of policy rates will stimulate credit expansion to critically important sectors that will also stimulate employment and revive economic activities for quick growth recovery.
“Policymakers must take action to stimulate growth and recovery. For Nigeria, although first-quarter gross domestic product turned out pleasantly at 1.87 percent and the race of inflation somewhat moderated, Nigeria may escape a recession if concerted efforts are sustained to stimulate output.” On why the MPC decided against a tightening monetary stance, Emefiele said: “Tightening would also increase the cost of credit, reduce investment and impact negatively on output growth. A hold may indicate that the monetary authorities are insensitive to prevailing weak economic conditions. There is, therefore, the need to signal a direction towards immediate recovery.