CBN Retains MPR At 13.5%

The  Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN)  has retained its Monetary Policy Rate at the 13.5 percent it adjusted it to in March this year.

In its communiqué, the Committee said it felt that although the slight inflation uptick should result in tightening, it nevertheless felt that doing this would limit the ability of deposit money banks (DMBs) to increase credit at this time, given the need to support or redirect the focus of the DMBs to new credits in support of consumer mortgage and other priority sectors of the economy including the SMEs, agriculture and manufacturing.

It also felt, given the fragile state of the economy, increasing the cost of credit would further diminish investment flow and impact negatively on output growth. Maintaining current monetary policy rate at its present level was essential for a better understanding of the momentum of growth before determining any possible modification.

The MPC decided by a vote of nine members out of 11 to hold all parameters of monetary policy constant. Two members voted, however, to reduce the MPR by 25 basis points. Consequently, the Committee retained MPR at 13.50 percent; retain the asymmetric corridor of +200/-500 basis points around the MPR; retain the CRR at 22.5 percent, and retain the Liquidity Ratio at 30 percent. Also, the  CBN said it would soon roll out new regulatory guidelines to restrict deposit money banks (DMBs) in the country from having unlimited access to government treasury securities.

CBN governor, Godwin Emefiele, said the decision was in response to a directive from the Monetary Policy Committee (MPC) on the bank to urgently put in place modalities to promote consumers and mortgage lending in the Nigerian economy.                                                                                               MPC gave the directive yesterday at the end of its two-day meeting in Abuja. It said discouraging the commercial banks’ appetite for government securities would greatly and positively impact on the flow of credit to the private sector and ultimately result in output growth. CBN regulation provides for a particular minimum percentage of treasury bills or treasury security or government securities that a bank must invest in order to remain liquid.

Addressing journalists at the end of the MPC meeting yesterday, the CBN governor said the directive was right because “this country badly needs growth.” He maintained that for Nigeria to achieve growth, “those whose primary responsibility it is to provide credit, who act as intermediaries in providing credit and are catalysts to credit and growth in the economy must be seen to perform that responsibility.

Management will certainly take this up and think of how to do that.” Banks have always expressed resistance to granting credit to the private sector, given their past experiences of a high rate of Non-Performing Loans that had resulted from such transactions. As a way out, the MPC asked CBN to think about administrative, legal and regulatory framework to be put in place to ensure that some of the credit risks that are associated with granting loan to the private sector that ultimately result in Non-Performing Loans (NPLs) are mitigated such that when banks decide to increase lending to private sector, the probability that NPLs would rise is moderated.

The MPC also felt that consumer credit and the mortgage credit market must be catalyzed in Nigeria. Emefiele disclosed that as of May 16, the nation’s foreign reserve stood at $45.42 billion, an increase of 2.2 percent from $44.44 billion at the end of April 2019. Also, the Committee enjoined the federal government to urgently build fiscal buffers through a more realistic benchmark oil price for the federal budget. The MPC called for close monitoring of the optic in inflationary pressures in April 2019, driven largely by food shortages during the Easter season, the commencement of the planting season as well as persistent security challenges in some of the food producing a region of the country. The Committee urged the relevant authorities to strengthen efforts to address the security challenges and improve food production. It encouraged financial intermediating institutions to ensure that loans to the agriculture sector were channeled effectively to end users.