Again, CBN leaves MPR unchanged at 14%

By Victor Tunde Oso

For the sixth time, the Monetary Policy Committee of the Central Bank of Nigeria on Tuesday left the Monetary Policy Rate unchanged at 14 per cent.

The CBN Governor, Mr. Godwin Emefiele, who announced the decision of the committee at the end of a two-day meeting held in Abuja, cited the need to allow gains of existing policies to fully trickle down.

The CBN also left the Cash Reserve Ratio (CRR) at 22.5 percent, the Liquidity Ratio unchanged at 30 percent and also the asymmetric corridor around the MPR at +200 and -500 basis points.

Emefiele explained that six members of the committee agreed to maintain the current monetary policy stance. He said that two members voted to ease monetary policy rate.

The CBN expressed particular concern about high inflation at 16.1 percent and also what it sees as “liquidity surfeit” in the banking sector.

Inflation slowed in June 2017, helped substantially by the CBN’s recent foreign exchange policies, which created dollar liquidity and dampened effect of imported prices into the largely import-dependent nation. This is the fifth consecutive decline in the rate of inflation since January this year.

But the CBN expressed fears, arguing that any movement in rates at this time could dampen inflation gains and discourage much-needed investments.

Though the apex bank acknowledges the fact that inflation numbers were trending downwards, it is uncomfortable that the rate is still significantly above its 6-9 percent policy reference band.

The CBN is also cautious that further tightening would widen income gap, depress aggregate consumption and adversely affect credit to the real sector of the economy.

Emefiele, however, raised hope of a possible waning in inflation by August, explaining that there is also a convincing argument that an accommodating monetary policy will further raise the negative real interest rate as the gap between interest rate and inflation widens.

The governor also projected a fragile economic recovery by the second quarter of 2017 but warned that the growth could relapse if government fails to put in place the needed fiscal stimulus and also push reforms to sustain growth gains.



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