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Published On: Wed, Nov 27th, 2019

Again, MPC retains Policy Rate at 13.5%

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By Etuka Sunday

Members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) have once again voted to retain policy rate at 13.5%.
Governor of the Central Bank of Nigeria, Mr Godwin Emefiele, disclosed this decision during a press conference at the end of a two-day MPC meeting held yesterday at the apex bank’s headquarters in Abuja.
He explained that the committee unanimously voted to retain the MPR, after the rates were reduced from 14 percent to 13.5 percent in March 2019, the first time the MPR was reduced since July 2016.
Announcing the decision of the MPC, Mr Emefiele said, the MPC voted to:
Retain the MPR at 13.5 per cent;
Retain the asymmetric corridor at +200/-500 basis points around the MPR;
Retain the CRR at 22.5 per cent; and Retain the Liquidity Ratio at 30 per cent.
He said, the MPC reviewed the upsides and the downsides of the options to tighten, hold or loosen. It was conscious that, while tightening may encourage capital inflows, it also has the downside consequence of constraining the already nascent recovery in output growth.
He said, the Committee also noted that a reduction in the policy rate will improve growth prospects, but in view of the uptick in inflationary pressures, it decided that the balance of risks was in favour of protecting price stability.
He said, “considering the recovery, decline in market interest rates, growth in domestic credit amongst other positive developments, the Committee felt that there would be more gains in the short to medium term in holding policy at its current position.
“In its consideration to hold, the MPC noted with pleasure, the positive outcome of actions already taken by the Bank. These actions include: current policy on loan-to-deposit ratio, which has resulted in loans and advances rising by over N1.1trillion between June to October 2019. It further noted that these actions have assisted in boosting credit to the agricultural and manufacturing sectors, hence, the positive outcome on the GDP.
“The MPC is hopeful that the LDR initiative must be sustained as interest rates being paid by borrowers have so far dropped by up to 400 basis points between June and October 2019. These have happened with corresponding decline in NPLs to 6.5 per cent at end October 2019.
“The MPC is, therefore, of the view that sustaining the MPR at its current level is crucial for better understanding of the unfolding impetus of growth before deciding on any probable variations.
“The MPC also feels that holding its current policy position offers pathways for appraising the effect of the heterodox policies to encourage lending by the banking industry without varying the policy rate as the downside risk to growth and caution on inflation looks stable.
On the impact of the recent closure of Nigerian land borders on domestic food prices, the Committee noted that any upward price movement arising from
the closure was reactionary and therefore temporary. Moreover, significant investment has been made over the last three years to sustainably increase domestic food supply.
It noted some of the key initiatives in this direction to include: the Commodity Development Initiatives, designed to finance the agricultural value chain of ten ((10) commodities namely; Cassava, Cocoa, Cotton, Rice, Tomato, Poultry, Livestock and Dairy, Fish, Oil Palm and Maize, which has received N171.66 billion in funding. Four of these crops received over 140.12 billion naira or 81.6 per cent of total disbursements (Cassava, 11.44 billion naira; Cotton, 40.47 billion naira; Rice, 53.40 billion naira; Oil palm, 34.81 billion naira).
It is, therefore, expected that the outcome of these interventions will close the supply gaps already envisaged in the medium to long term,including dampening domestic prices. It thus, expressed support for the temporal closure of Nigeria’s land borders, noting that securing the country’s land borders should be further enhanced.
On crude oil price, the Committee noted the lull in the futures market, suggesting that prices would remain relatively weak into the foreseeable future. The Committee, therefore, urged the Federal Government to reconsider its 2020 budget oil price benchmark of US$57 per barrel, to build fiscal buffers.
The Committee was confident that despite the weaknesses from the external sector, efforts to ramp-up domestic production, through several measures by both the monetary and fiscal authorities, would douse the adverse effects on the domestic economy in the medium term, through the reduction of importation of food and other commodities.

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