The Monetary Policy Committee of the apex bank, the Central Bank of Nigeria (CBN) on Tuesday reduced the Monetary Policy Rate (benchmark interest rate) from 13 per cent to 11 per cent.
The decision was announced by the CBN Governor, Mr. Godwin Emefiele, while addressing journalists shortly after the MPC meeting held at the central bank’s headquarters in Abuja.
This is the first time in about six years that the committee will be reducing the MPR, which is the anchor rate at which the CBN lends money to Deposit Money Banks.
The committee, according to the governor, also voted to reduce the Cash Reserve Requirement from the current 25 per cent to 20 per cent as well as changed the symmetric corridor of 200 basis points around the MPR to an asymmetric corridor of +200 basis points and -700 basis points, around the MPR.
Explaining how the decisions were arrived at, the governor explained that the MPC, by a vote of eight to two, reduced the MPR from 13 per cent to 11 per cent, while two members voted for a retention of the rate at 13 per cent.
For the CRR, he said seven members voted to reduce it from 25 per cent to 20 per cent, while three elected to hold the rate.
In addition, Emefiele said eight members voted for an asymmetric corridor of +2/-7 per cent, while two voted to retain the symmetric corridor of +/-2 per cent around the MPR.
In arriving at the decisions, the governor said the committee considered the weakening fundamentals of the economy, particularly the low output growth, rising unemployment and the uncertainty of the global economic environment.
He said, “The MPC noted the fragility of the domestic macroeconomic environment; reflected partly in low output growth, soft oil prices, low credit to the high employment elastic sectors of the economy, and sustained inflationary pressure, which, however, softened moderately in October.
“The MPC was particularly concerned that the previous liquidity injections embarked upon through lowering of the CRR in the last MPC has not transmitted significantly to improved credit delivery to key growth and employment in sensitive sectors of the economy.
“Rather, more credit was to sectors with low employment elasticity. While noting the imperative of complementary fiscal policies to augment monetary policy under the circumstance, the monetary policy must remain bold in charting the desired course that will stimulate sustainable output growth in Nigeria.”
On the high rate of unemployment in the country, the CBN governor noted that the MPC evaluated various options for ensuring increased credit delivery to the key growth sectors of the economy, capable of generating employment opportunities, and improving productivity and growth.
The Committee, he added, also underscored the need for banks, to ensure that measures taken by the CBN to inject liquidity and stimulate the economy adequately translate into increased lending to the sectors with sufficient employment capabilities and the potential to generate growth.
The areas where funds will be channelled into, according to him, are the real sector, infrastructure, agriculture and solid minerals.
Emefiele explained, “The MPC agreed that going forward, any attempt by the CBN at easing liquidity into the system shall be directed at targeting the real sector, infrastructure, agriculture and solid minerals.
“The MPC further directed the bank’s (CBN) management to put in place necessary measures/regulations to ensure strict compliance by the DMBs. This is aimed at ensuring that employment and productivity is stimulated, while also moderating prices.”
When asked about the impact of the reduction of the CRR on monetary easing, the governor said this would enable the banks to channel more funds into targeted sectors under the supervision of the CBN. – Punch.
