The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), yesterday, voted to retain the current benchmark interest rate and keep other policy parameters unchanged.
To analysts’ surprise, the Monetary Policy Rate (MPR) was kept unchanged at 11.5%, amid rising inflation, which peaked at 15.7% in February.
The MPR is the rate at which the CBN lends to commercial banks, which in turn determines the rate at which banks lend to their customers and therefore used to control money in circulation.
The CBN Governor, Godwin Emefiele, however revealed that three members voted for a 25 basis points increase, one member voted for a 50 basis points increase, while six members voted for the retention of the rates.
At the end of the Committee’s meeting, Emefiele announced that all key policy rates were held unanimously.
Among these parameters were cash reserve requirement (CRR), which stipulates the minimum deposit a bank must hold in reserves at 27.5%; liquidity ratio at 30%; and the asymmetric corridor (margin around the MPR) at +100/-700 basis points around the MPR.
The MPC also feels that not only will tightening reverse the steady improvement recorded in credit expansion; it is also of the view that tightening would not necessarily tame the inflation.
Maintaining status quo
In a communiqué read by Emefiele, the MPC argued that tightening the rate given “the fragile state of the current GDP growth and the potential external and domestic headwinds from Russia and Ukraine war, a contractionary policy stance will stifle the expected investment expansion needed to drive growth and absorb the shock in Nigeria.”
It also expressed concern “that the global situation of rising prices may continue in the near term but may begin to moderate if deliberate and urgent actions are taken by both monetary and fiscal authorities to correct rising inflation.”
The communiqué reads further: “On another hand, the committee was satisfied that the use of the bank’s discretionary CRR policy should be deployed more aggressively to control the level of money supply in the economy.
“The MPC also feels that not only will tightening reverse the steady improvement recorded in credit expansion, it is also of the view that tightening would not necessarily tame the inflation.
“In the case of whether to loosen, the Committee feels that loosening will trigger further liquidity surfeit and fuel inflationary pressure as available funds outstrips the economy’s absorptive capacity or domestic capacity utilisation.
“MPC also feels that loosening will trigger FX demand pressure as the excess liquidity would exact demand pressure on the FX market and trigger a naira depreciation, which will also fuel inflation.”
Russia-Ukraine war
Emefiele noted that the plethora of sanctions following Russia’s invasion of Ukraine will have a significant downside risk to the global economy.
He added that the gains of economic growth which were recorded since lifting COVID-19 restrictions have been eroded by the Russian-Ukraine crisis, especially the high energy prices being experienced in Nigeria.
This, he said, has aggravated Nigeria’s inflation further compounded by the poor power supply.
