MPC: Why We Retained Interest Rate At 11. 5% – CBN

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) has again voted to retain the Monetary Policy Rate (MPR) at 11.5 percent and hold all policy parameters constant.

Rising from its meeting in Abuja, Tuesday, the CBN governor, Mr Godwin Emefiele announced that the Committee decided by a unanimous vote to retain the MPR at 11.5 per cent; retain the asymmetric corridor of +100/-700 basis points around the MPR; retain the CRR at 27.5 per cent; and retain the Liquidity Ratio at 30 per cent.

Emefiele said, the MPC made the decision to hold all policy parameters constant; believing that a hold stance will enable the continued permeation of current policy measures in supporting the recorded growth recovery and macro-economic stability.

He said, MPC was delighted at the meeting that inflation had begun to trend downwards, while output growth had remained positive.

He said, the Committee, however, was of the opinion that there was a need to continue to put in place policy measures that will further and faster drive down inflation, while at the same time accelerate output growth to levels above population growth rate.

“Whereas, the arsenal at its disposal had almost become fully exhausted, MPC believe that there is the need to continue to use those tools that had been adopted so far, even in a more aggressive manner.

“MPC, therefore, encourage the Bank to continue using its existing administrative methods to rein-in inflation by the use of its discretionary CRR policy to mop-up liquidity from the banking system as the need arises.

“The Committee also encouraged the Bank to continue the use of its intervention mechanism to deploy funds to output-stimulating and employment-generating sectors of the economy, such as, the Targeted Credit Facility, AGSMEIS, Agriculture and Manufacturing”, he said.

The apex bank governor said, “in the Committee’s view, the current situation, neither gives room for tightening, as this will hurt output growth, nor, loosening, as this will exacerbate inflationary pressures.

“On tightening, MPC feels that whereas this will limit excess liquidity available to attack the foreign exchange market, it nevertheless feels that tightening will reduce money supply and thus, inhibits the ability of Deposit Money Banks (DMBs) to create credit that is needed to stimulate manufacturing output which could also help to moderate prices

“On loosening, whereas MPC feels this should transmit into lower market interest rates which could improve the ability of obligors to repay their loans and reduce NPLs, it nevertheless feels loosening would not only exacerbate inflationary pressure, but this would increase negative real rate of return and discourage
investments in the domestic economy”, the MPC Chairman said.

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