CBN commences Forex ban on food importation
CBN Governor, Godwin Emefiele

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is set to reconvene next week for its periodic meeting. The notice of the meeting was just released by the apex bank on its website.

According to the notice of the scheduled meeting, the 268th MPC meeting will hold next week (July 22nd and 23rd) at the MPC Meeting Room, 11th Floor, Wing C, CBN Corporate Headquarters, Abuja.

The MPC meeting: Basically, the MPC is the CBN’s highest monetary policy decision-making body. It comprises the governor of the Bank who shall be the chairman, the four deputy governors of the Bank, two members of the board of directors of the Bank, three members appointed by the president, and two members appointed by the governor.

  • The MPC sets monetary policy for banks in the country through decisions on the Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR) and Liquidity ratio.
  • These variables determine the quantum of funds that the banks have at their disposal to lend.
  • The MPR is the rate at which the CBN lends to banks. This, in turn, determines the interest rate banks charge members of the public.

Decisions at the last meeting: The Central Bank’s MPC meeting last held in May 2019 where all key rates were left unchanged. Basically, the MPR was kept at 13.50%, while other parameters were also held respectively as follows:

  • The asymmetric corridor of +200/-500 basis points around the MPR s retained
  • CRR was held 22.5%; and
  • The Liquidity Ratio was also kept at 30%.

While explaining reasons for hold rates, the MPC also noted that lowering rates would aggressively restart the capital activities, and stimulate growth. On the other hand, MPC noted there is a need to restrain from loosening in order not to exacerbate inflationary pressures.

[READ: CBN maintains a Hold, keeps MPR constant at 13.5%]

A crucial meeting:  The MPC meeting holding next week will be first to be held since the Central Bank’s Governor, Godwin Emefiele officially began another five-year term in the office. All hands will once again be on deck as rate cut may happen.

  • Also, the CBN’s recent policy ordering all banks to maintain a minimum loan to deposit ratio of 60% by September 2019, aimed at improving lending to the real sector will be an important factor in the MPC’s decision.
  • Hence, investors will be eagerly anticipating decisions at the meeting which may likely consolidate recent policy moves by the CBN.

The Bottom Line is that in the event of a rate cut, investors holding debt securities could end up having lower yields (returns) on treasury bills and bonds. For borrowers, a rate cut, in theory, should lead to lower borrowing costs.

[READ FURTHER: CBN issues new circular that could force banks to lend to nearly everyone]

Deal book 300 x 250

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