MPC: CBN Retains MPR at 12.5%, Holds Other Policy Parameters Constant

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L-R: Deputy Governor, Financial System Stability, CBN, Mrs Aisha Ahmad, CBN Governor, Mr Godwin Emefiele, and Deputy Governor, Operations Directorate, CBN, Folashodun Adebisi Shonubi, at the media briefing on the outcome of Monetary Policy Committee (MPC) meeting in Abuja.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) Monday voted to retain the Monetary Policy Rate (MPR) at 12.5 per cent and all other policy parameters.

CBN Governor, Godwin Emefiele who announced the decision of the Committee shortly after the meeting in Abuja said, the Committee decided by a vote of eight members to Hold and two members voted to Reduce MPR. All members voted to retain all other policy parameters.

Emefile said, “in summary, the MPC voted to: Retain the MPR at 12.5 per cent; Retain the asymmetric corridor of +200/-500 basis points around the MPR; Retain the CRR at 27.5 per cent; and Retain the Liquidity Ratio at 30 per cent”.

Reading out the committee’s consideration, he said, MPC noted that the current coordinated efforts by the Federal Government to contain the COVID-19 pandemic would reposition the economy on a sustainable path of rapid recovery.

The apex bank Governor said, “the Committee welcomed the government’s articulated fiscal stimulus to cushion the impact of the pandemic on households and businesses, through various palliatives and fiscal incentives and reiterated the need for effective and timely implementation.

“The MPC expressed the utmost need for both the monetary and fiscal authorities to collaborate, for the optimal synergy for
measures targeted at reviving the economy.

“The Committee called on the government to sustain its efforts at diversifying revenue sources and ensure fiscal prudence, particularly, with the use of the recent grants and multilateral concessionary loans.

“The Committee encouraged the adoption of counter-cyclical fiscal policy framework to shield the economy from persistent revenue shocks.

“The MPC noted the Bank’s overarching commitment to maintaining price stability and encourage the Bank to sustain the current measures targeted at moderating inflation, including addressing some of the supply-side structural challenges.

“The Committee urged the Bank to continue to give particular attention to its mandate of exchange rate stability, given the recent volatility in the international financial system, to avoid excessive demand pressures in the foreign exchange market.

“The MPC commended the Bank on its efforts in sustaining the soundness and resilience of the financial system, particularly, in the face of severe economic challenges.

“The Committee noted the Bank’s drive to accelerate credit growth to the private sector, especially to micro, small and medium scale enterprises and the recent monetary stimulus packages to households and businesses affected by the pandemic,” he said.

On the committee’s decision, he said, “the Committee reviewed the policy options before it and argued that the option of tightening at this time would contradict the noble initiative of expansion of affordable credit to the real sector, noting
that this would heighten the cost of production which will translate to higher prices of goods and services and harder economic condition for people.

“On the other hand, loosening monetary stance would provide the desired succour for stimulating output growth and rapid recovery, but with implications for domestic private investment and capital
mobilisation to support the huge domestic financing gap.

“Further cut in MPR may not necessarily lead to a corresponding decrease in market interest rate, considering the current economic challenges.

“The Committee was also mindful of the cut in policy rate at the last MPC meeting and the need to allow time for the transmission effect to permeate the economy.

“Given the plethora of monetary and fiscal measures recently deployed to address the impending economic crisis, following the COVID-19 outbreak, it would be a relatively cautious option to hold, in order to evaluate the effectiveness of these tools at addressing the current challenges, particularly with the mounting uncertainties within the domestic economy, as well as the external vulnerabilities.

“After reviewing the three options, the MPC noted that the imperative for monetary policy at the May 2020 meeting was to strike a balance between supporting the recovery of output growth and reducing unemployment while maintaining stable prices.

“The Committee noted at this meeting that the economic fundamentals  havemarginally improved by the end of June 2020, following the gradual pick-up of economic activities as the positive impacts of the various interventions permeate into the economy.

“As a result, the Committee noted that the earlier downward adjustment of the MPR by 100 basis points to 12.5 per cent to signal the loosening monetary policy stance is yielding positive impact as credit growth increased significantly in the economy.

“The Committee also noted the positive impact of the various fiscal and monetary interventions on households, SMEs and manufacturing
sectors.

“The Committee also noted that increasing MPR at this stage will thus be counter-intuitive and will result in upward pressure on market rates and cost of production.

“In view of the foregoing, the Committee decided by a majority vote to retain the Monetary Policy Rate (MPR) at 12.5 per cent and to hold all other policy parameters constant,” he said.

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