The 252nd Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN) has agreed to retain all three monetary policy indicators at the current rates as part of efforts to encourage capital inflows.
Speaking to newsmen after 48 hours meeting in Abuja, Central Bank Governor, Mr. Godwin Emefiele said all the 10 members present unanimously pushed for the retention of the Monetary Policy Rate (MPR) at 14 percent, the Cash Reserve Ratio(CRR) at 22.5 percent and liquidity ratio at 30 percent.
The decision was taken despite calls recently by the Minister of Finance Mrs Kemi Adeosun to cut the interest rates to allow government to borrow at a lower rate, in order to reflate the economy which is currently in recession.
Emefiele however explained that past experience in bringing down the rates were however negative especially increasing lending to the private sector as they had put so much pressure on demand for foreign exchange as the banks give out the excess funds to traders who also turnaround to use these extra funds to ask for foreign exchange.
Hear Emefiele: “Our own view is that in the past the MPC took a decision not only to reduce the policy rate but to also reduce the cash reserve ratio. We intended to lower rates and encourage spending to the private sector. After we did that because we did not see the impact in terms of credit to the private sector that we needed to further reduce the CRR. During that time when we reduced the CRR from 30.5 per cent to 25 per cent, it provided an opportunity for the CBN to inject N1 trillion into the banks”.
He said the Committee was of the view that in the past, the MPC had cut rates to achieve the above objectives; but found that rather than deploy the available liquidity to provide credit to agriculture and manufacturing sectors, the rate cuts provided opportunities for lending to traders who deployed the same liquidity in putting pressure on the foreign exchange market which had limited supply, thus pushing up the exchange rate.
With respect to providing opportunity to the public sector to borrow at lower rates to boost consumption and investment spending, the Committee agreed that while it was expected to stimulate growth through aggressive spending, doing so without corresponding efforts to boost industrial output by taking actions to deepen foreign exchange supply for raw materials will not help reduce unemployment nor would it boost industrial capacities.
The Committee was also of the view that consumer demand for goods which will be boosted through increased spending may indeed be chasing too few goods which may further exacerbate the already heightened inflationary conditions.