The Central Bank of Nigeria on Monday retained the country’s benchmark interest rate or Monetary Policy Rate at 12.5 per cent.
It also held all other monetary policy parameters constant, as the bank stated that its interventions in the economy were yielding positive results.
The Governor, CBN, Godwin Emefiele, said the retention of the MPR at 12.5 per cent was the decision of the Monetary Policy Committee at their July 20, 2020 meeting.
He said the Committee also noted that increasing MPR at the current stage of the economy would be counter-intuitive and would result in upward pressure on market rates and cost of production.
“In view of the foregoing, the committee decided by a majority vote to retain the Monetary Policy Rate at 12.5 per cent and to hold all other policy parameters constant,” Emefiele said.
He added, “The committee decided by a vote of eight members to hold and two members voted to reduce MPR. All members voted to retain all other policy parameters.
“In summary, the MPC voted to retain the MPR at 12.5 per cent; retain the asymmetric corridor of +200/-500 basis points around the MPR; retain the CRR (Cash Reserve Ratio) at 27.5 per cent; and retain the Liquidity Ratio at 30 per cent.”
The CBN boss observed that further cut in MPR might not necessarily lead to a corresponding decrease in market interest rate, considering the current economic challenges.
He said the committee was mindful of the cut in policy rate at the last MPC meeting and the need to allow time for the transmission effect to permeate the economy.
He said, “Given the plethora of monetary and fiscal measures recently deployed to address the impending economic crisis, following the COVID-19 outbreak, it would be a relatively cautious option to hold.
“This is in order to evaluate the effectiveness of these tools at addressing the current challenges, particularly with the mounting uncertainties within the domestic economy, as well as the external vulnerabilities.”
Emefiele noted that after reviewing key options, the MPC noted that the imperative for monetary policy at the May 2020 meeting was to strike a balance between supporting the recovery of output growth and reducing unemployment while maintaining stable prices.
He said the committee noted at this (July) meeting that the economic fundamentals had marginally improved by the end of June 2020.
This, he said, was following the gradual pick-up of economic activities as the positive impacts of the various interventions permeate into the economy.
As a result, he said the committee noted that the earlier downward adjustment of the MPR by 100 basis points to 12.5 per cent to signal the loosening monetary policy stance was yielding positive impact as credit growth increased significantly in the economy.
He said the committee also noted the positive impact of the various fiscal and monetary interventions on households, SMEs and manufacturing sectors.