The Monetary Policy Committee, MPC, of the Central Bank of Nigeria, CBN, has voted unanimously to retain the monetary policy rate at 13.5 percent.
Rising from the committee’s monthly meeting, CBN Governor, Godwin Emefiele, disclosed that the Cash Reserve Ratio, CRR, was retained at 27.5 percent, liquidity ratio at 30 percent and asymmetric corridor at +200 -500 basis point.
Emefiele said the decision was reached to allow previously announced interventions “time to permeate the economy and allow the pandemic to wear out itself.”
“Taking note of the recent actions of the bank in response to COVID-19, the committee 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,” he said.
On the considerations of whether to tighten, hold or loosen rates, Emefiele said: “In its wisdom, the committee felt that tightening would result in reining in the rising inflationary pressure and it would support reserve accretion.
“However, it would reduce the money supply and reduce deposit money banks credit creation capacity, thus resulting in increasing the cost of credit with adverse impact on output growth.”
He said tightening would also result in a reduction in aggregate demand as a fall in disposable income would result in output compression whereas, at this time, “policy emphasis should be on stimulating aggregate supply and demand both already weakened by COVID-19.”
The committee also felt that loosening the rate would stimulate the economy in the short term and expressed the need to be cautious in loosening given the fact that it would “exacerbate an already worsening inflationary condition resulting in massive pressure on the reserves and exchange rate.”
In response to the COVID-19 outbreak in Nigeria, the CBN had reduced interest rates for its intervention programmes, extended moratorium by one year for beneficiaries, injected N1.1 trillion into the economy, provided funding to pharmaceutical companies and hospitals, and adjusted the exchange rate to N380/$.
On the fiscal side, the federal government reduced the 2020 budget by N1.5 trillion and the crude oil benchmark to $30 per barrel from $57.