CBN MPC cuts benchmark interest rate to 12.5%

The monetary policy committee of the Central Bank of Nigeria (CBN) has reduced the monetary policy rate to 12.5% from 13.5%.

Godwin Emefiele, governor of the apex bank, announced the committee’s decision on Thursday at the end of the committee’s meeting.

Emefiele said the committee was of the opinion that tightening would be “inappropriate” given the economic disruptions caused by the COVID-19 pandemic.

Cash reserve ratio (CRR) was retained at 27.5%, liquidity ratio at 30% and asymmetric corridor around the MPR at +200/-500 basis points.

“The MPC observed the weakening of the global macroeconomic environment due to the adverse impact of COVID-19 and drop in crude prices which has resulted in negative outputs for most economies,” Emefiele said, reading the committee’s decisions.

“Excess liquidy engendered by loosening may overshoot the economy’s capacity and accelerate inflationary pressures, it nevertheless feels that given the slow rate of acceleration of inflation, the accommodative stance will stimulate aggregate demand and supply in a short term.

“This is because an accommodative stance through a lowering of policy rates will stimulate credit expansion to critically important sectors that will also stimulate employment and revive economic activities for quick growth recovery.

“Policymakers must take action to stimulate growth and recovery. For Nigeria, although first-quarter gross domestic product turned out pleasantly at 1.87% and the race of inflation somewhat moderated, Nigeria may escape a recession if concerted efforts are sustained to stimulate output.”

According to Emefiele, the committee felt that tightening would result in further contraction of aggregate demand as disposable demand diminishes.

“Tightening would also increase the cost of credit, reduce investment and impact negatively on output growth. A hold may indicate that the monetary authorities are insensitive to prevailing weak economic conditions. There is, therefore, the need to signal a direction towards immediate recovery.”

The committee revised the MPR downward from 14% to 13.5% at its March 2019 meeting.