MPC: Why We Retained Interest Rate At 11.5% -Emefiele


The Central Bank of Nigeria (CBN) has announced its decision to retain Monetary Policy Rate (MPR) at 11.5% while holding other parameters constant.

CBN’s Governor, Mr Godwin Emefiele announced the decision shortly after the first Monetary Policy Committee (MPC) meeting of the year 2022 at the bank’s headquarters Tuesday, January 25, 2022 in Abuja.

Emefiele said, “the Committee decided by a unanimous vote to retain the Monetary Policy Rate (MPR) at 11.5 per cent; The Asymmetric Corridor of +100/-700 basis points around the MPR; The CRR at 27.5 per cent; and The Liquidity Ratio at 30 per cent”.

He explicated that “after a careful balancing of the benefits and downsides of each policy option, the MPC decided to hold all policy parameters constant; believing that a hold stance would enable the continued permeation of current policy measures in supporting the recorded growth recovery and further boost production and productivity, which would ultimately rein-in inflation in the short to medium term.

“He he further explained that the MPC observed with concern the moderate rise in inflation in December 2021, noting that this was typical of increased aggregate demand associated with the end of year festive activities.

“Members, however, expressed their continued commitment to drive down domestic prices by putting in place relevant policy measures to curb the rise in inflationary pressures, while also supporting the fragile growth recovery.

“In its determination as to whether to hold or loosen or tighten its policy stance, the MPC was mindful that, whereas the US and some Advanced Economies have signaled their intention to commence policy normalisation which may result in capital flow reversal for EMDEs, the major focus at these climes were targeted mainly at reining in the high level of inflation which had been unprecedent in the last four decades in those climes.

“For Nigeria, members were of the view that Nigeria is confronted with, not only inflation but also fragile output growth. As a result, MPC believes that its current stance of price and monetary stability conducive for growth remain desirable.

“The MPC is convinced that various measures being implemented were helping, not only in boosting output growth, but also in moderating inflation.

“The MPC therefore, enjoyed Management to continue to use its development finance tools to accelerate output growth, which will also help in boosting manufacturing output that would ultimately aid moderation in prices.

“It also requested Management to continue its use of administrative measures, including discretionary tools at its disposal through CRR to control money supply in the economy.

“In its final consideration, the Committee was clear that a loosening option was not desirable because it would trigger liquidity surfeit and fuel inflationary pressure as available funds may outstrip the economy absorptive capacity or domestic capacity utilization.

“It also feels loosening could trigger foreign exchange demand pressure, as the excess liquidity would be channeled to either frivolous importations or speculative holding of foreign exchange as alternative investment channels narrow; leading to foreign exchange depreciation and or inflation.

“The MPC also dropped a tightening option at this meeting in view of the fragile state of the current GDP growth rate and potential external and domestic headwinds confronting the economy.

“The Committee opined that tightening could truncate the steady improvement in credit performance, including other financial soundness indicators, and reverse the declining trend in NPLs.
“Moreover, tightening could counteract the CBN’s credit expansion motive as a necessary condition for improved economic growth and employment generation.

“The MPC, therefore, concluded that a HOLD stance remains desirable at this time, as this would indicate a conservative but cautious and consistent policy choice given the prevailing economic conditions and outlook, thus strengthening policy credibility and focus.

“It also feels that a hold would signal MPCs realisation of the fragility of the growth recovery and its sensitivity to emerging global and domestic uncertainties. Hence the need to sustain the current policy trajectory”.

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