The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) rose from its meeting on Tuesday retaining the Monetary Policy Rate (MPR) at 13.5 per cent.
The Governor of the CBN Mr. Godwin Emefiele who also presided over the MPC meeting said this is mainly due to persistent uncertain economic conditions and high inflation.
Mr. Emefiele made this known at a news conference on Tuesday in Abuja on the outcome of the MPC meeting for the month of May.
Emefiele said 11 members were present at the meeting, adding that while nine voted to retain the MPR, two members voted to reduce the MPR by 25 basis point from 13.5 per cent to 13.2.5 per cent.
Consequently, he said the Cash Reserves Ratio (CRR) remained unchanged at 22.5 per cent, liquidity at 30 per cent and Asymmetric corridor at +200 and -500 basis points around the MPR.
Emefiele said the Committee also noted with concern the rising level of non-performing loans in the banking system and the fact that the economy was still confronted with growth challenges and inflationary pressure.
“In view of the development, the committee therefore, identified two likely policy options: Tightening or maintaining the status quo.
“The committee felt that although the slight inflation optic should resolve in tightening, it nevertheless felt that doing this will limit the ability of deposit money banks to increase credit to SMEs, agriculture and manufacturing.
“As regards to loosening, some members felt that it was desirable to aggressively stimulate growth, restock the capital market activities and increase lending at lower rates which will ultimately stimulate domestic aggregate demand.
“Those against loosening also felt that given that there is a marginal increase in headline inflation for April 2019, there is need to restrain from loosening in other not to exasperate inflationary pressures.
“They also felt the economy will experience liquidity boost and without corresponding growth in real sector output, inflationary pressures could be elevated resulting in likely exchange rates pressures.
“As for members who favoured to hold position, maintaining policy rate at its present level was essential for better understanding of the momentum of growth before determining any possible modification.
“They also felt that retaining the current policy stand provides an avenue for evaluating the impact of the bank’s intervention policies to support lending to the priority sectors of the economy,” he said.
According to Emefiele, the committee called on the fiscal authority to intensify the implementation of the Economic Recovery and Growth Plan to stimulate economic activities and create employment.
“The committee noted with concern the disruption to the food supply chain in major food producing states due to poor infrastructure and the ongoing security challenges.
“It noted the rise in food prices contributing to the uptake in the headline inflation.
“However, the committee was optimistic that as harvest progress in the coming month, pressure on food prices would recede and impact positively on food prices over the medium term,” he said.
Emefiele said that the MPC also took the decision to limit the ability of commercial banks to invest in government securities like treasury bills.
He said that the practice was impacting negatively on commercial banks’ ability to lend to the private sector which are the main drivers of growth in any economy.