The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday retained the Monetary Policy Rate at 11.5 per cent.
The CBN Governor, Godwin Emefiele, disclosed this after the committee’s two-day meeting in Abuja.
It also retained the Cash Reserve Ratio and Liquidity Ratio at 27.5 per cent and 30 per cent respectively.
The committee retained the asymmetric corridor of +100/-700 basis points around the MPR.
At the meeting, the committee also expressed concerns of eminent challenges of servicing the country’s mounting debt liabilities.
Ten members of the committee were in attendance.
“The committee expressed concern over the rising public debt stock, as recurrent expenditure remained relatively high, compared with capital expenditure, thus, signalling future debt servicing challenges,” Emefiele said.
Members of the committee reiterated the adverse impact of insecurity on food production, stressing that the current uptick in inflationary pressure could not be solely associated with monetary factors, but due mainly to legacy structural factors across the economy, including major supply bottlenecks across the country.
The committee called on the government to redouble efforts at strengthening infrastructural efficiency and address the emerging security challenges in the country.
In addition to this, the committee called on the government to explore the option of effective partnership with the private sector to improve funding sources necessary to address the huge infrastructural financing deficit.
To improve government revenue sources and investment in capital, the committee called on the government to take advantage of the take-off of the African Continental Free Trade Area, which could boost domestic production and generate sizeable revenues for government, as well as improve domestic productivity and competitiveness.
The committee noted that the COVID-19 pandemic and the necessary measures put in place by the government to forestall its public health impact, such as the lockdown and other associated restrictions, contributed to the Nigerian economy going into recession, much like almost every other country in the world.
Members agreed that the committee’s current priority remained to quicken the pace of the recovery through sustained and targeted spending by the fiscal authority supported by the bank’s interventions.
A professor of capital market at the Nasarawa State University Keffi, Uche Uwaleke, said as usual, the choices before the MPC was whether to reduce, increase or hold the rates.
He said, “While on the one hand, a rate cut appeared justified by need for the CBN to support economic recovery efforts of the government; on the other hand, the need to stabilise exchange rate as well as tackle the rising inflation favoured tightening monetary policy.
“This presented a dilemma which the MPC rightly managed by maintaining the status quo and holding the rates in a bid to strike a balance between the two seemingly diametrically opposing sides of enabling output growth and curbing rising inflation.
“By doing so, the CBN will have some more time to monitor macroeconomic response to all its interventions in the wake of COVID-19 pandemic.
“So, in my view, the MPC did not disappoint. Their unanimous decision is consistent with market consensus and expectations.”
A professor of economics, Babcock University and past President, Chartered Institute of Bankers of Nigeria, Prof. Segun Ajibola, said the rates had very little impact and difference either in the money market or the economic environment as a whole.
He said, “Let’s look at the MPR of 11.5 per cent, as at today, treasury bills rates and deposit rates are hovering between one and three per cent, whereas MPR is supposed to be a reference rate.
“Lending rate is still in the average of over 20 per cent. So you see that the MPR is just hanging somewhere, not necessarily dictating either cost of borrowing or return on your deposit from banks, and it is supposed to be a reference rate for both sides.”
“So there is that disconnect,” he added.
Explaining further, he said, “When you look at the CRR, you tend to ask, if the CBN is still enforcing 65 per cent loan to deposit ratio, add 22.5 per cent to that, you will discover that at the end of the day, the banks themselves are left with little or nothing out of their deposit portfolio, not other businesses.”
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