The Central Bank of Nigeria (CBN) 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 its Monday.
However, the Lagos Chamber of Commerce and Industry said the business community was more worried by the silence of the apex bank on the uncertainty in the foreign exchange market.
Emefiele 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 said 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, small and medium enterprises and manufacturing sectors.
The Director-General, LCCI Mr Muda Yusuf, said, “The outcome of the MPC meeting did not come as a surprise.
“The monetary authorities have done so much since the shock of COVID-19 hit the country. Indeed, the CBN has been bullish in this regard.
“The deployment of monetary policy instruments has practically reached its limits.
“What the business community would like to see at this time is the mitigation of anxiety and uncertainty in the foreign exchange market.
“This is perhaps the greatest worry in the business environment.”
Yusuf added, “The liquidity crisis in the forex market is becoming unbearable and it is impacting adversely on investors’ confidence.
“Many investors have lost their credit lines as a result of inability to remit funds to meet outstanding obligations.
“Many manufacturers are having challenges getting forex for their raw materials and equipment.”
The LCCI boss said that the business community would like the CBN to quickly fix the forex challenge before it degenerates further. – Punch.
The concern of the Lagos Chamber of Commerce and Industry about the uncertainty in the foreign exchange market is legitimate. The CBN has been devaluing Naira against foreign currencies, especially the US dollar by almost 25% recently. Devaluation of your country currency is literally making your people poorer in comparison to people of other countries of the world. Developing countries that managed to develop in Asia focused on three things, one of which is managing their financial market, including stabilising their foreign exchange rates. They basically did not devalue their currency against the US dollar, contrary to many external forces. This is well captured in the book Joe Studwell “How Asia Works” It responds to two of the greatest questions in development economics: How did countries like Japan, Taiwan, South Korea, and China achieve sustained, high growth and turn into development success stories? And why have so few other countries managed to do so? The countries that developed have three essential three-part formula:
– Create conditions for small farmers to thrive.
– Use the proceeds from agricultural surpluses to build a manufacturing base that is tooled from the start to produce exports.
– Nurture both these sectors (small farming and export-oriented manufacturing) with financial institutions closely controlled by the government, including stabilising foreign exchange rate and maintaining low lending interest rate of financial institutions.
This can be read from Bill Gates’ two-page summary of the book in his note – “Can the Asian miracle happen in Africa?, of December 08, 2014.