CBN reduces interest rate to 13.5% …Insists on monetary tightening
BY FRANCIS EZEM
The Monetary Policy Committee of the Central Bank of Nigeria CBN, on Tuesday reduced the Monetary Policy Rate, also known as the main interest rate, from 14 per cent to 13.5 per cent.
The MPR is the rate at which the CBN lends to commercial banks and which often determines the rate at which other financial institutions lend to other fund users in the country.
Governor of the CBN, Mr. Godwin Emefiele, who announced the decision of the MPC at the end of a two-day meeting in Abuja, explained that six members out of 11 who attended the meeting voted in favour of reducing the current monetary policy stance.
He also disclosed that the decision to reduce the rate was taken in the overall interest of the economy, as there was a need to have a refocus on monetary tightening, a development that is expected to help to increase the level of credit from the banking sector to businesses.
It was gathered that the committee also reduced the MPR to 13.5 per cent, while retaining the Cash Reserves Ratio at 22.5 per cent, the liquidity ratio at 30 per cent; and the asymmetric window at +200 and -500 basis points around the MPR.
“The MPC decided by a vote of six out of 11 members to reduce the monetary policy rate by 50 basis points, that is 0.5 per cent. Two members voted to reduce the rate by 0.25 per cent, while one member voted to reduce it by one per cent. Two members, however, voted to hold the MPR at its current level.
“The MPC noted the positive moderate outlook for growth and the risk in the horizon. The committee also noted that having achieved a relatively stable exchange rate with price stability, it is imperative that the monetary policy should explore the next steps necessary for enhancing growth, reducing unemployment and diversifying the base of the Nigerian economy,” Emefiele said.
He further explained that the new direction had become imperative against the backdrop of the aftermath of the general national elections and strong inflow of foreign direct and portfolio investment into the economy.
The Governor said: “The committee felt that given the relative stability in the key macroeconomic variables, there is a need to signal a new direction and in which case we are talking about being pro-growth.
“In its argument, the committee was convinced that doing this will further uphold the bank’s commitment to promoting strong growth by way of encouraging credit flow to the productive sector of the economy.”
When asked if the reduction in interest rate would not result in pressure on the naira in the foreign exchange market, the governor responded, “My answer is no. We have seen stability in the market in over two and a half years and there is no need for anybody to worry; we will withstand any pressure.”
He also said that the apex bank is projecting a 2.3 per cent economic growth rate for 2019, arguing that the marginal reduction in MPR would further help to achieve these projections.