COMFORT EKELEME
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has reduced Monetary Policy Ratio (MPR) by 100 basis points from 12.5 per cent to 11.5 per cent.
CBN governor, Godwin Emefiele announced the committee’s decision on Tuesday at the end of its two-day meeting.
Emefiele said the committee retained the Cash Reserve Ratio (CRR) at 27.5per cent because it was of the opinion that the recent inflationary pressures are driven by structural policies, not monetary policy.
The committee also retained liquidity ratio at 30 per cent.
According to Emefiele, reducing the MPR will put pressure on the Deposit Money Banks (DMBs) to lower cost of credit and the cheaper credit will improve demand, stimulate production, reduce unemployment and support the recovery of output growth.
Explaining the committee’s decision, Emefiele said, “Bearing in mind its primary mandate of price stability and the need to support the recovery of output growth, the likely action to address the rise in domestic prices would have been to tighten as it would moderate upward pressure on prices and attract fresh capital to improve the state of the economy and external reserves.
“It may stifle the recovery of output growth and drag the economy further into contraction,” he said.
On the other hand, holding rates would allow the economy to adjust to the stimulus measures put in place by monetary and fiscal authorities and give the MPC more time to assess the impact on the economy.
A number of central banks have lowered interest rates to support their economies in response to the pandemic and the US Federal Reserve has said it will keep rates at near zero until at least 2023.
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