After its meeting on the 22nd and 23rd of March 2021 , the Monetary Policy Committee (MPC) has resolved to continue to focus on efforts to stimulate outputs rather than to focus on reining in inflation, which(at 17.33 per cent) is almost attaining the January 2017 inflation level of 18.72 per cent. Sequel to this, it has agreed to retain the MPR at 11.5 per cent , the asymmetric corridor of +100/-700 basis points around the MPR , CRR at 27.5 per cent and the Liquidity Ratio at 30 per cent.
However, it also considered a hold position which encourages Management to continue to use its various intervention mechanisms to deploy liquidity into employment generation and output stimulating sectors of the economy would be desirable as this would help consolidate the country’s recovery process.
Before taking the above resolutions , the Committee was thrown into dilemma; 3 members voted for increase MPR by 50, 75 and 50 basis points respectively while 6 members voted to hold all parameters constant.
In its consideration of whether to tighten, hold or loosen the Committee felt that with inflation at a 3-year high and price stability being the Bank’s core mandate, a contractionary policy stance might be required to tame the rising trend. This notwithstanding , MPC believed that tightening would hike the cost of capital and hamper investments required to create employment and continue to boost recovery.
On the other hand, MPC also observed that whereas loosening would lower rate and improve access to credit which would drive investment, reduce unemployment and stimulate aggregate demand, it believed that loosening would create excess liquidity, which would intensify demand pressure on the foreign exchange market, thereby leading to further depreciation in the currency.
MPC was also worried that the level of unemployment must be addressed swiftly to moderate the restiveness among the populace. Again, members were generally of the view that given that the exit from recession is fragile, any decision to tighten or rein-in inflation, may reverse the fragile recovery and return the economy into recession.
In the light of the above views , the consensus among MPC members was that, given that inflation is substantially a supply side phenomenon, there is need to continue to focus on consolidation o the recovery process, by taking those actions that would continue to stimulate output growth, create employment, but at the same time have an eye on effort to moderate the inflationary pressure; using the current administrative measures being adopted by the Bank in controlling monetary aggregates in the banking system.
