At today’s Monetary Policy Committe (MPC) meeting, members of the committee decided to leave the Monetary Policy Rate (MPR) and other variables unchanged. The MPR was left at 14%, liquidity ratio at 30% and Cash Reserve Ratio (CRR) at 22.5%. The asymmetric corridor was left at +200bps and -500 basis points around the rate.
The MPR is the rate at which the CBN lends to financial institutions. The MPR serves as a benchmark by which banks and other financial institutions in the country lend to individuals and businesses. Liquidity ratio is the proportion of bank assets that are expected to be held in cash or near liquid cash. Cash Reserve Ratio is the amount of cash that banks are expected to keep with the Central Bank of Nigeria (CBN). The CBN adjusts the various rates in order to control the volume of money within the financial system. The asymmetric corridor is the limit within which the interest rates can be adjusted.
Why the rates were left unchanged
During a press briefing after the meeting, CBN Governor Godwin Emefiele stated that the rates were unchanged in order to ensure stability in the economy. A reduction in the rates would have left interest rates negative in real terms. Inflation rates are currently 16.1%, higher than interest rates
Implications of the hold decision
The financial markets had already factored a likely hold decision, so markets did not react. Businesses that were expecting a drop in the MPR, which would have reduced lending rates may have to wait a while. Holders of money market securities will also be happy with the decision as a drop in rates would have led to a drop in rates for treasury bills.