Interest rates to remain 13.5% as CBN MPC supports VAT increase

The monetary policy committee (MPC) of the Central Bank of Nigeria has voted that monetary policy rate, which measures interest rate, should remain at 13.5%.

This is the third consecutive time that the committee will retain the rates since March 2019 when the rates were reduced by 50 basis points.

The cash reserve ratio (CRR) was retained at 22.5%, liquidity ratio at 30% and asymmetric corridor at +200 -500 basis point.

According to Godwin Emefiele, the CBN governor, nine members were present at the meeting and all members in attendance voted in favour of holding rates.

Explaining the committee’s considerations, Emefiele said, “tightening in the midst of a fragile growth outlook would increase the cost of credit while loosening will heighten inflationary tendencies.

“Increased liquidity will result in exchange rate pressures as the money supply rises.

“Holding will require a clear understanding of the quantum and timing of liquidity injections into the economy before deciding on possible adjustments to the stance of monetary policy.”

The committee expressed its support for the federal executive council’s decision to increase value-added tax saying it would reduce the budget deficit and government borrowing when implemented.

“Committee noted that this was too little to close the gap in government financing and called on the government as a matter of urgency adopt a big bank approach towards building fiscal buffers by freeing up redundant public assets through an efficient and effective privatisation process,” Emefiele said.

“This would raise significant revenue for the government and resuscitate the redundant assets to generate employment and contribute effectively to national economic growth.”

The committee also advised the national assembly to “exercise restraint” from increasing budget oil benchmark since crude oil prices are projected to remain tight.

The federal government was also advised “to adopt other ways of funding its operations outside the banking sector” so that credit can be directed towards the private sector.