The Monetary Policy Committee, for the 11th consecutive time, retained the Monetary Policy Rate at 14 per cent due to persistent uncertain economic conditions and high inflation.
Godwin Emefiele, Governor of the Central Bank of Nigeria, made this known at a news conference on Tuesday in Abuja on the outcome of the MPC meeting.
He said out of the nine members at the meeting, eight voted to retain the MPR and other monetary indices, while one person voted to increase the MPR.
The News Agency of Nigeria reports that the MPR was last changed by 50 basis points in July 2016.
This means that the Cash Reserve Ratio still remains 22.5 per cent and Liquidity Ratio, 30 per cent. Also, the Asymmetric corridor is fixed at +200 and -500 basis points around the MPR.
He said in arriving at the decision, the committee considered the forecast of high liquidity injection in the second half of 2018 and upward pressure on prices, driven largely by substantial expansion of fiscal policy.
Emefiele said: “This pressure will arise from the late passage of the 2018 budget, outstanding balance from the 2017 budget and the pre-election expenditure.
“Tightening would ensure the mop up of excess liquidity, accelerate the reduction in the rate of inflation to single digit, boost investor confidence and promote foreign capital flows with complimentary impact on exchange rate stability.
“Conversely, the committee believes that raising the interest rate would depress consumption and increase the cost of borrowing to the real sector.” According to him, in reviewing the choice of loosening, the committee evaluated the possible impact of stimulating aggregate demand through lower cost of credit.
He said: “Nevertheless, the committee deliberated on the choice at a time when liquidity had been forecast to rise substantially at the second half of the year.
“The outcome would most likely exacerbate inflationary pressures, cost higher pressure on the exchange rate and as demand for foreign exchange increases and return real rate into negative territory.
“Also, the reduction in the MPR may not necessarily transmit to lowering market lending rate, on account of high cost of doing business.”
He said while the committee argued for a hold, it observed that the downside risk to growth and upside risk to inflation appeared balanced as growth was improving, while inflation was moderating.
Emefiele said: “Maintaining the current policy stand would sustain gradual improvement in both indices.
“In summary, the predominant argument for a hold at this time is to await more clarity of key indicators, that is, the signing into law and implementation of the 2018 budget, among other fiscal policies.”
Emefiele said the committee expressed satisfaction with the slow but gradual growth in the economy.
He said the MPC also took note of the improved performance of Deposit Money Banks and observed that the relatively high non-performing loans in the industry were reducing.
He said the committee also urged government to promptly settle outstanding arrears to contractors, which accounted for a major part of the non-performing loans in the banking sector.
He said: “The committee commended the effort of the CBN in achieving positive outlook for the banking industry and advised the bank to intensify efforts to further improve banking sector soundness.
“They also advised the CBN to sustain its monitoring apparatus over DMBs to ensure compliance with existing prudential measures and early detection and management of vulnerabilities in the banking sector.
“They also urged the CBN to make sure that liquidity continues to flow from the Banks to the real sector to further strengthen economic recovery and employment generation.”
Emefiele announced that the CBN had appointed Standard Chartered Bank and Stanbic IBTC as the corresponding banks for the N720 billion Nigeria-China Swap deal.
He said in the coming week, the CBN would release the framework for the Nigeria-China Swap deal.
He said: “I am optimistic that Nigerians will reap the positive impact from this and we expect that when the framework is released, Nigeria will end up being the remedy trade hub in the West African sub region.
“This is because there are currently only three countries in Africa that enjoy the currency swap deal between China and themselves; South Africa, Egypt and Nigeria.
“So, Nigerians and the West African sub region will benefit a lot from this arrangement.”