The Monetary Policy Committee (MPC), of the Central Bank of Nigeria (CBN), has voted unanimously to retain the Monetary Policy Rate (MPR) at 11.5%
This was disclosed by Governor, CBN, Godwin Emefiele while reading the communique at the end of the MPC meeting on Tuesday 26th January 2021.
Other parameters such as Cash Reserve Ratio (CRR), Liquidity ratio, and asymmetric corridor remain unchanged.
Highlights of the Committee’s decision
- MPR retained at 11.50%
- The asymmetric corridor of +100/-700 basis points around the MPR
- CRR was retained at 27.5%
- While Liquidity Ratio was also kept at 30%
According to Emefiele, MPC was of the view that it should pursue its current stance of systematic synchronization of monetary and fiscal policy accommodation through its developmental finance initiatives. This is aimed at quickening the recovery process of the country’s economy.
“Although the economy is currently in a stagflation environment with simultaneous occurrence of inflationary pressures and contracting output, the MPC resolved to reverse both developments and continue pursuing price stability in growing the economy”, He said.
On the other hand, the committee also opined that an aggressive expansionary stance could worsen both inflation and the negative real interest rate, thereby affecting the exchange rate negatively.
CBN’s move to quicken economic recovery
According to the report, The Central Bank has committed a substantial amount of money towards its effort to mitigate the impact of the covid-19 pandemic on the economy.
- Notably, a total disbursement of N20 trillion has been made as at January 2020 to cushion the effect of the pandemic.
- It also stated that from the Covid-19 Targeted Credit Facility (TCF) meant for household and small businesses, a total of N192.64 billion has been disbursed to 426,016 beneficiaries.
- N106.96 billion have also been disbursed to 27,956 beneficiaries under the Agri-Business Small and Medium Enterprises Investment Scheme (AGSMEIS)
- While 72.96 billion has been deployed to 73 projects in the Health Care Support Intervention Facility.
- Other areas where the CBN had deployed funds include; the Creative Industry Financing Initiative and Nigerian Youth Investment Fund, National Mass Metering Programme.
Outlook for the economy
- The committee reiterated that available data and forecasts for key macroeconomic variables for the Nigerian economy suggest a further improvement in output growth in Q1 2021. A development, which would be supported by the coordinated and sustained interventions of the monetary and fiscal authorities.
- Some other interventions that would also support the intended growth include the broad-based stimulus and liquidity injections.
- Inflationary pressure is expected to commence moderation as the economy’s negative output gap closed.
- The committee, however, raised concerns over uncertainties in the oil market and the current uptick in the second wave of covid-19 infection rate as it could pose some downside risks to this forecast.
What this means
- The Central Bank’s decision to retain the benchmark interest rate at 11.5% is in line with its move to boost consumer spending by increasing credit facilities to households, SMEs, health, agricultural, and the manufacturing sector so as stimulate the Nigerian economy.
- Holding the rate will also encourage borrowing, as lending rate by banks is expected to remain low.