CBN Led Monetary Policy Committee Leaves Interest Rate Unchanged at 11.5%

The Central Bank of Nigeria-led monetary policy committee (MPC) on Tuesday voted to leave the interest rate unchanged at 11.5 percent.

In the apex bank’s communique no. 135 of the Monetary Policy Committee meeting held on Monday 22nd and Tuesday 23rd March 2021, the committee attributed the decision to persistent inflationary pressure largely caused by the surge in food prices.

Nigeria’s inflation increased by 18.17 percent the month of March, the highest in years.

According to the report, “the dilemma that confronted the MPC relates to whether to continue to focus on efforts to stimulate outputs or whether 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. 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 its consideration of whether to tighten, hold or loosen, therefore, the Committee felt that with inflation at a 3-year high and price stability being the Bank’s core mandate, a contractionary policy stance may be required to tame the rising trend. It nevertheless feels that tightening will hike the cost of capital and hamper investments required to create employment and continue to boost recovery.

On the other hand, MPC thinks that whereas loosening would lower rate and improve access to credit which will drive investment, reduce unemployment and stimulate aggregate demand, it feels that loosening will create excess liquidity, which will intensify demand pressure on the foreign exchange market, thereby leading to further depreciation in the currency.

It, therefore, feels that 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.

The Committee, therefore, decided by a vote of 3 members to increase MPR by 50, 75 and 50 basis points respectively, and 6 members voted to hold all parameters constant.

In summary, the MPC voted to:
I. Retain the MPR at 11.5 per cent;
II. Retain the asymmetric corridor of +100/-700 basis points around the MPR;
III.Retain the CRR at 27.5 per cent; and
IV. Retain the Liquidity Ratio at 30 per cent.