The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has for the first time in two years adjusted interest rate downwards to 13.5 per cent.
Briefing Journalists after the meeting on Tuesday, CBN Governor, Godwin Emefiele said: “the MPC voted to adjust the Monetary Policy Rate (MPR) by 50 basis points from 14 to 13.5 per cent; retain the asymmetric corridor of +200/-500 around the MPR; retain CRR at 22.5 per cent and retain the liquidity ratio at 30 per cent.”
He explained that in arriving at the decision to adjust MPR (interest rate) downwards, “the committee was convinced that doing this will further uphold the banks’ commitment to promoting strong growth by way of encouraging credit flow to the productive sectors of the economy.
“The MPC also felt that through loosening by a marginal rate, will serve to manage the sentiments in the capital flow market owing to the wider spread in yields in the emerging markets and the developing economies relative to the advanced economies. Moreover, the real interest rates will still remain positive.”
Emefiele added: “The answer is a capital no, I don’t see that happening. Like I just told you that we have seen stability in the market over the last two to two and a half years and there is no need for anybody to worry. We will withstand any pressure.”
On the growth projection of 2.7 per cent by the CBN, Emefiele said: “We have actually been in positive growth trajectory in the last five to six quarters with an average GDP growth of about 1.9 per cent. I think that if you look at the trend from 2017 into 2018, we will naturally say that if we push hard, even harder than we have done in the past, that we should be able to attain the 2.7 per cent and three per cent growth.
“What we are just trying to say here is that with the data available, and with consistency and with the push, that we are positive we will be trending towards 2.7 per cent to three per cent in growth rate which is actually not fantastic if you consider where Nigeria’s growth trajectory has always been around five per cent.
The MPC decided by a vote of six out of 11 members to reduce the MPR by 50 basis points, that is 0.5 per cent. Two members voted to reduce MPR by 0.25 per cent – that is 25 basis points. A member voted to reduce it by 100 basis points, which is one per cent.
Two members, however, voted to hold MPR at its current level. Ten members voted to hold all other parametres constant while a member voted to reduce the Cash Reserve Ratio (CRR) by 100 basis points from 22.5 per cent to 21.5 per cent.
The decision to slash interest rate, he explained, followed the action of “banks themselves which have started dropping the interest rate very marginally. But we are trying to let them know that in fact, in this case, I will say that we are following them. That is why we say that we are signaling. We are signaling in the sense that with time this will permeate the entire banking sector and people will begin to see the expected impact.”
The MPC also noted the need to rebase the economy (GDP), which was last done in 2010.
Reacting to this development, Prof Uche Uwaleke of the Nasarawa State University said: “The reduction in MPR by 50 basis points signals the CBN’s desire to relax monetary policy to support economic growth. Obviously, it is a right response to the declining inflationary pressure and the relative stability in exchange rate which have prevailed for quite some time.
“Moreover, on the external front, crude oil price has stabilised around $65 per barrel while the US interest rate normalisation has slowed down. All these must have combined to influence the MPC decision which is expected to increase the flow of credit to the real sector.
“The reduced MPR will also be positive for the capital market as some of the increased liquidity that will ensue will flow into the equities market. Also, it will be cheaper for the government to issue bonds, given that part of this year’s budget deficit will be financed through domestic borrowing.”
