CBN reduces MPR to 12.5%, holds other metrics

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CBN to provide employment from large scale cassava production - Emefiele
CBN Governor Godwin Emefiele.

Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 13.50% to 12.50% and retains CRR at 27.5%, Liquidity ratio at 30%.

Governor, CBN, Godwin Emefiele, disclosed this while reading the communique at the end of the MPC meeting on Thursday in Abuja.  Meanwhile, other parameters such as the Cash Reserve Ratio  (CRR) remained at 27.5%, Liquidity ratio at 30%.

Analysts had earlier predicted that MPC would leave the interest rate of 13.5% unchanged during its meeting yesterday.

The projection came on the heels of macroeconomic fundamentals released by the National Bureau of Statistics (NBS), which showed that inflation rose to 12.34%; its seventh consecutive monthly rise and highest level since April 2018.

Note that Nigeria’s inflation could potentially rise to 14% by the end of the year due to a higher VAT and a weakened naira. Therefore, in order to minimise the risk of exacerbating inflationary pressures, the CBN is unlikely to further cut rates. This possible outcome from the MPC meeting will help stimulate economic growth, just like it did in 2019.

Meanwhile, despite the foreign exchange liquidity crisis being experienced in the currency spot market, data obtained from CBN revealed that the country’s foreign exchange reserves have further increased to $36.16 billion (Gross Estimate) as of 28th of May, 2020.

The surge in Nigeria’s external reserves is due to the fact that the price of crude had gained more than 40% since the deadly COVID-19 pandemic started, coupled with reports that foreign investors are returning to Nigeria. The disbursement of $3.4 billion emergency facility by the International Monetary Fund (IMF) to CBN has also been a contributing factor.

However, at the Thursday meeting, seven members voted to cut the MPR by 100 basis points, while two members voted for a 150bps rate cut, with one member electing for a 200bps rate cut, the Governor said.

Mr Emefiele added that the asymmetric corridor around the MPR will remain at +200/-500bps, while the Cash Reserves Ratio (CRR) at 27.5 per cent and Liquidity Ratio (LR) at 30 per cent.

The Committee also considered developments in the global and domestic economy since its last meeting including, the negative impact of COVID-19 on global growth and the responses of global central banks’ to the COVID-19.

On the domestic front, the Committee noted that sustained inflationary pressure (April: +8bps to 12.34per cent y/y), and weaker but still positive output growth in first quarter of 2020, as well as a sustained decline in manufacturing PMI.

According to Emefiele, the decision of the MPC to reduce the MPR  was informed by the impact of the Covid-19 pandemic on the economy, increased inflationary pressure, restrictions in international trade and more.

He highlighted the decline in the nation’s GDP as well as the decline in the manufacturing and non-manufacturing purchasing index which were attributable to slower growth in production, rate of unemployment, amongst others.

Meanwhile, CBN had said it has reduced interest rates on facilities through participating Other Financial Institutions (OFIs) from 9 per cent to 5 per cent per annum for one year effective March 1, 2020.

The measure is in continuation of the banks effort to mitigate the impact of the COVID-19 pandemic on households, businesses and regulated institutions.

CBN in a circular signed by the Director, Financial Policy and Regulation Department , Kevin Amugo, also announced that CBN intervention facilities obtained through participating OFIs – Microfinance Banks (MFBs), Primary Mortgage Banks, and Institutions, among others will be given a further one-year moratorium on all principal repayments, also effective March 1, 2020.

According to the circular, OFIs have equally been granted leave to consider temporary and time limited restructuring of the tenor and loan terms for households and businesses affected by COVID-19, subject to the recently issued guidelines for restructuring affected credit facilities in the OFI sub-sector.

Expatiating on the decision of the Bank, the Director, Corporate Communications Department, Isaac Okorafor, said the Management approval for the restructuring of credit facilities in the Other Financial Institutions (OFI) sub-sector was in line with the Bank’s desire to alleviate momentary strain on households, businesses and regulated institutions triggered by the lockdown due to COVID-19.

He explained that the CBN would also continue to monitor developments and implement appropriate measures to safeguard financial stability and support stakeholders impacted by the COVID-19 pandemic.

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