The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has held the Monetary Policy Rate (MPR) constant at 13.5%. This was disclosed by Governor, CBN, Godwin Emefiele, while reading the communique at the end of the MPC meeting.
Other parameters such as Cash Reserve Ratio (CRR), Liquidity ratio, and asymmetric corridor remain unchanged. According to the MPC, the decision to hold all rates constant was largely driven by the effect of the outbreak of COVID-19 that has largely disrupted the global economy, as Nigeria faces a crunch test following crash in oil price.
Highlights of the Committee’s decision
- MPR was kept at 13.50%
- The asymmetric corridor of +200/-500 basis points around the MPR was retained.
- CRR was retained at 27.5%
- While Liquid Ratio was also kept at 30%
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The Committees decision
According to Emefiele, the MPC felt that tightening would result in reining in the rising trend in inflation and that it would support reserve accretion. However, this would reduce money supply and limit DMBs credit creation capacity, thus resulting in increasing the cost of credit, with adverse impact on output growth.
With respect to loosening, the Committee felt it would stimulate the economy in the short term, and boost aggregate supply and demand. Nevertheless, the MPC was of the view that there was a need to be cautious in loosening given the fact that it would exacerbate an already worsening inflationary condition, resulting in massive pressure on reserves and the exchange rate.
Based on the balance of these arguments, the MPC stated that due to the recent actions already taken by the Management of the Bank in response to the COVID-19, it resolved to allow time for the measures to permeate the economy while allowing the pandemic to wear out its plateau before deciding on further supporting policy measures to boost and strengthen aggregate demand and supply in the recovery phase of the economy.
Consequently, the choice to hold also considered the subsisting LDR and the CRR policies, which sterilize excess liquidity in the banking system, hence an increase in the MPR would be counter-productive.
The COVID-19 may trigger recession
In its communique, the MPC reviewed prevailing adverse conditions in the global economy such as the COVID-19 pandemic and the oil price shock. According to Emefiele, COVID-19 will also result in massive economic crises that will force many countries into recession, including the leading industrialised countries. On the Nigerian economy, the decline in oil prices will severely impact accretion to external reserves and the exchange rate pressures.
While providing details on the Central Bank’s exchange rate unification, the CBN governor stated that the apex bank’s prompt response with the adjustment of the exchange rate to uniform market rates and the removal of distortions is expected to also impact the economy.
COVID-19 Pandemic dampens outlook
On the front foot, the MPC underscored that COVID-19 pandemic as a public health crisis will continue to undermine any monetary or fiscal stimulus unless appropriate measures are taken to trace, test, isolate and treat infected persons in order to curtail the spread.
The MPC, therefore, called on the Federal Government to take the necessary steps to safeguard the population through close monitoring and emergency readiness measures to identify and care for infected persons in the country, including compulsory restriction of movement to curtail the spread of the pandemic.
