The Monetary Policy Committee of the Central Bank of Nigeria, CBN, today at the end of its meeting in Abuja, reduced the MPR by 100 basis points from 12.5 percent to 11.5 percent and adjusted the asymmetric corridor from +200/-500 basic points to +100/-700 basis point around the MPR.
Reading the Communique at the end of the Committee meeting, CBN’s Governor, Godwin Emefiele said Six members voted to reduce the MPR by 100 basis points, one member by 50.0 basis points and three voted to hold as Nine members voted to change the asymmetric corridor while one member voted to hold.
He noted that all members of the Committee voted to retain the Cash Reserve Ratio (CRR) at 27.5 percent and Liquidity Ratio (LR) at 30 percent
He said the committee faced a difficult set of policy choices, requiring trade-offs and sequencing as a result of declining economic growth and rising inflation.
In view of this, he said the Committee reviewed the choices before it, bearing in mind its primary mandate of price stability and the need to support the recovery of output growth.
Consequently, Emefiele said the Committee noted that the likely action aimed at addressing the rise in domestic prices would have been to tighten the stance of policy, as this will not only moderate the upward pressure on prices but will also attract fresh capital into the economy and improve the level of the external reserves.
It, however, noted that this decision may stifle the recovery of output growth and thus, drive the economy further into contraction.
On easing the stance of policy, he said the MPC was of the view that this action would provide cheaper credit to improve aggregate demand, stimulate production, reduce unemployment and support the recovery of output growth.
Emefiele read in part: ‘’The Committee, however, observed that with inflation trending upwards, easing of the policy stance may exacerbate the current inflationary pressure through an increase in the money supply. In addition, the MPC noted the tendency of an asymmetric response to downward price adjustments by ‘Other Depository Corporations’, thus undermining the overall beneficial impact of a reduction to the cost of capital.
‘’In the Committee’s view, a hold position will allow the economy to adjust to the ongoing stimulus measures put in place by the monetary and fiscal authorities to curb the downturn and allow more time for the MPC to assess their impact on the economy.
‘’After the consideration of the three policy options, Members were of the opinion that the option to loose will complement the Bank’s commitment to sustain the trajectory of the economic recovery and reduce the negative impact of COVID-19. In addition, the liquidity injections are expected to stimulate credit expansion to the critically impacted sectors of the economy and offer impetus for output growth and economic recovery.’