Again, CBN retains 11.5% interest, holds other parameters constant…Cites supply side inflationary trends
The Monetary Policy Committee MPC of the Central Bank of Nigeria CBN, has once again, decided to retain the Monetary Policy Rate MPR; also called the interest rate at 11.5per cent.
The MPC in its second meeting of 2021, held between March 22-23, 2021 in Abuja, voted six against three to retain MPR at 11.5per cent and other parameters constant.
Meanwhile, members of the committee cited the persistent supply inflationary phenomenon as the major reason for their decision to vote to hold the parameters constant. They had argued that since Nigeria’s inflation is substantially a supply side phenomenon, there was the need to continue to focus on consolidation of the recovery process.
This was disclosed by the Governor of the apex bank, Godwin Emefiele while reading the communiqué at the end of the MPC meeting on Tuesday.
In addition to retaining the MPR at 11.5per cent, other major decisions of the committee include to retain the asymmetric corridor of +100/-700 basis points around the MPR, while the Cash Reserve Ration CRR was retained at 27.5per cent even as the Liquidity Ratio was also kept at 30per cent where they have been since the last quarter of 2020.
According to the communiqué released by the apex bank, the actions that would consolidate the recovery process include stimulating output growth, create employment, while also putting effort to moderate the inflationary pressure.
“In its consideration of whether to tighten, hold or loosen, the Committee felt that with inflation at a 3-year high and price stability being the Bank’s core mandate, a contractionary policy stance may be required to tame the rising trend.
“It however considered that tightening will hike the cost of capital and hamper investments required to create employment and continue to boost recovery. Also, loosening the policy stance would lower rates and improve access to credit which will drive investment, reduce unemployment and stimulate aggregate demand.
“On the flip side, it feels that loosening will create excess liquidity, which will intensify demand pressure on the foreign exchange market, thereby leading to further depreciation in the currency. It therefore, voted to retain the current parameters, which encourage the CBN to continue to use its various intervention mechanisms to deploy liquidity into employment generation and output stimulating sectors of the economy.
“In terms of funding, the committee noted that the Bank has disbursed funds under its various agricultural interventions towards improving food supply in Nigeria”, Emefiele also said.
It was further gathered that the committee was of the view that the disbursement of ₦107.60 billion to 548,109 farmers cultivating 703,619 hectares of land between Q4 2020 and Q1 2021 to boost dry season output in support of agricultural value chain development would boost food supply.
According to Emefiele, the medium-term outlook for both the domestic and global economies indicates cautious optimism.
It is, however, premised on the expectation of sustained policy support and successful deployment of the COVID-19 vaccines around the globe and its effectiveness in ensuring herd immunity.
Available data and forecasts for key macroeconomic variables for the Nigerian economy suggest a further rebound in output growth for the rest of 2021. This is according to the Governor of CBN.
The CBN’s decision to retain the benchmark interest rate at 11.5per cent, indicates it’s continued effort to stimulate the economy by improving access to loans whilst hoping to increase productivity.
The country’s headline inflation rate rose to 16.47per cent (year-on-year) in January 2021 as against 15.75per cent recorded in December 2020.