Despite worsening recession, CBN holds benchmark interest rate

The Central Bank of Nigeria (CBN) has decided to hold benchmark interest rates, in the face of worsening inflation and deepening recession.

Godwin Emefiele, governor of the bank, said the monetary policy committee decided that holding all the rates was best for the economy at the moment.

In summary, the MPC voted to: retain MPR at 14 percent; retain the CRR at 22.50 percent; retain the Liquidity Ratio at 30.00 percent; and retain the Asymmetric Window at +200 and -500 basis points around the monetary policy rate.

The MPC also urged government to settle its outstanding domestic debts, which they said has “slowed economic activities”.

This is coming a day after the National Bureau of Statistics (NBS) report showed that the nation’s economic recession worsened in the third quarter, shrinking by 2.24 percent.

Time Economics, an economic consulting firm focused on communications, research, strategy and markets, led by Ogho Okiti, said “with inflation at 18.3% and the MPR at 14%, the real interest rate was -4.3%”.

“Real interest rates dropping further into negative territory would have made Nigerian assets less attractive to foreign investors. However, raising the MPR would have increased borrowing costs for local borrowers.

“This presented an additional difficulty for the MPC as it had to balance the conflicting requirements of foreign and local investors.

“The MPC’s decision to keep its major policy rates unchanged was an attempt to walk the tightrope between supporting growth and curbing inflation, and attracting foreign investors without raising domestic borrowing costs.”