Why MPC Voted To Retain Interest Rate At 11.5% -Emefiele

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 Central Bank of Nigeria (CBN)’s Governor, Mr. Godwin Emefiele has hinted why the members of the Monetary Policy Committee (MPC) of the apex bank voted to retain interest rate at 11.5 percent.

Mr. Emefiele gave the hint today why briefing newsmen shortly after the committee’s meeting at the CBN’s Headquarters in Abuja.

He said, the members unanimously voted to: I. Retain the MPR at 11.5 per cent; II. Retain the asymmetric corridor of +100/-700 basis points around the MPR; III. Retain the CRR at 27.5 per cent; and IV. Retain the Liquidity Ratio at 30 per cent.

The CBN’s Head said, MPC was confronted with a policy dilemma as to whether to aggressively combat the inflationary pressure or support measures currently aimed at stimulating growth and reversing the recession.

He said, although the economy was currently in a stagflation environment with simultaneous occurrence of inflationary pressures and contracting output, the MPC resolved to reverse both developments and continue pursuing price stability in growing the economy.

Emefiele noted that the MPC was of the view, that whereas there may be wisdom in loosening, given that the impact of the global Covid-19 pandemic has resulted in constrained activities, disruption to supply chain and suppress aggregate demand, an accommodative stance may be required to stimulate credit expansion and boost recovery in the short term.

He said, the Committee was also of the view that an expansionary policy would enable the monetary authorities convince the financial institutions to reduce loan pricing and defer interest and principal repayments to critically affected obligors in a sustainable manner.

On the flip side, he said, the MPC also opined that an aggressive expansionary stance may worsen both inflation and the negative real interest rate, thereby resulting in negative consequences on exchange rate. With regard to tightening, MPC concluded that this may run contrary to its objectives of providing affordable credit to
households, MSMEs, Agriculture, and other output growth and employment stimulating sectors of the economy.

He said, “the MPC was therefore of the view that it should pursue its current stance of systematic synchronization of monetary and fiscal policy accommodation through its developmental finance initiatives, aimed at mitigating the impact of the COVID-19 pandemic on Nigerians.

“While expressing understanding of the public health dilemma of the recent spike in infections, MPC encouraged Government not to consider a wholesome lockdown of the economy so as not to reverse the current gains of the stimulus earlier provided in 2020.

“It also encouraged the Central Bank of Nigeria Management to intensify its efforts in the targeted credit facility to household, SMEs, the Health Sector, as well as Agric and manufacturing sectors which would not only boost consumer spending but result in manufacturing output thereby positively impacting the GDP,” he said.

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