Four months after the Monetary Policy Committee (MPC) reduced interest rates, it has reversed its decision and increased Monetary Policy Rate or interest rates bank lend money to 12 per cent.
Addressing reporters at the end of the two-day MPC meeting in Abuja yesterday, the Central Bank of Nigeria (CBN) Governor, Mr Godwin Emefiele said the Committee, after the assessment of the relevant internal and external indices, came to the conclusion that the balance of risks is tilted against price stability. The MPC therefore, he said, voted to tighten monetary policy.
Based on this, the MPC raised MPR by 100 basis points from 11.00 per cent to 12.00 per cent; raised the Cash Reserve Ratio (CRR) by 250 basis points from 20.00 to 22.50 per cent; retained liquidity ratio at 30.00 per cent; and narrowed the asymmetric corridor from +200 and -700 basis points to +200 and -500 basis points.
Before arriving at this decision, Emefiele said: “The bank had adopted accommodative monetary policy since July 2015 in the hope of addressing growth concerns in the economy, effectively freeing up more funds for DMBs (deposit money banks) by lowering both CRR and MPR, with excess liquidity arising from the lower CRR warehoused at the CBN.”
Emefiele said the DMBs were to access these funds by submitting verifiable investment proposals in the real sector of the economy.
He lamented that the funds have not impacted the market yet because the CBN was still processing some of the proposals submitted by the DMBs. In the first episode of easing which resulted in injecting liquidity into the banking system, DMBs did not grant credit as envisaged, Emefiele said.
He said: “The delay in passage of the 2016 budget has further accentuated the difficult financial condition of economic agents as output continues to decline due to low investment arising from weak demand.
“The cautious approach to lending by the banking system underpinned by a strict regulatory regime conditioned by the Basel Committee in the post-global financial crisis era has further alienated investors from access to credit as banks prefer to build liquidity profiles in anticipation of government borrowing.”
The Committee noted that the sluggish growth in output was partly attributable to “certain fiscal uncertainties, which inadvertently hampered investment spending and flows; intermittent fuel scarcity, increased energy tariffs (without commensurate improvement in power supply), foreign exchange scarcity as well as slow growth in credit to private sector in preference to high credit growth to the public sector.”
The MPC noted that many of these factors were outside the control of monetary policy, stressing that given these limitations, in the absence of complementary fiscal and structural policies, the only option was to continue with existing measures.
