The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has for the first time in over three years adjusted interest rate downwards to 13.5%
Addressing journalists at the end the second MOC meeting in 2019, Central Bank Governor Godwin Emefiele disclosed that “the MPC voted to adjust the Monetary Policy Rate (MPR) by 50 basis points from 14% to 13.5%; retain the asymmetric corridor of +200/-500 around the MPR; retain CRR at 22.5% and retain the liquidity ratio at 30%.”
Emefiele stated that in arriving at the decision to adjust MPR (interest rate) downwards, “the committee was convinced that doing this will further uphold the bank’s commitment to promoting strong growth by way of encouraging credit flow to the productive sectors of the economy.”
He noted that “the MPC also felt that through loosening by a marginal rate, will serve to manage the sentiments in the capital flow market owing to the wider spread in yields in the emerging markets and the developing economies relative to the advanced economies. Moreover, the real interest rates will still remain positive.”
When asked if there was a relationship between slashing interest rates and the loosening stance of the MPC as signalled on Tuesday, and funding Small and Medium Enterprises (SMEs) Emefiele stated that, “to a reasonable extent, there is a relationship between lending to not just SME but to the agriculture, manufacture and the real sectors of the economy and our decision today. The reason being that if you consider the fact that for instance, January 2017, inflation had attend the level of risen 18.72 percent and by December 2017, as a result of the pressure on the foreign exchange market, reserves have dropped to about $23 billion and by that same month, even what was accruing into central bank had dropped to about $500 million from as high as over $3 billion sometime in August 2013/2014.”
Emefiele added that “exchange rate as a result of the pressure had accelerated to as high as N525 to a dollar. But if you compare those numbers with where we are today, the inflation at 11.3 percent, foreign reserves at close to $45 billion, and we feel this trend will continue. Exchange rate converging in all the markets at between N358 to N360, GDP being in positive trajectory consecutively for five to six quarters then you will agree with me that there is relative stability and we have proved that there is sustainability in the level of macroeconomic indices in Nigeria.”
Defending the decision further, Emefiele noted that “having being on this part particularly the MPR at about 14% since July 2016, and with the relative stability we have seen in the macroeconomic variables over the last two to two and a half years, we just think that this should be the next phase where we begin to think about consolidating growth. This should be the next phase where you should be talking about how do we create more jobs and reduce the level of unemployment in our country for people.”
“We believe this should be the next phase where we should be talking about how do we diversify the base of the Nigerian economy? And that in doing that, we will continue to keep our eyes on the stability that we have achieved so far in the macroeconomic environment – I mean we will continue to do what we have been doing that is keeping inflation low, we will continue to do what we are doing that is keeping the exchange rate stable, we will continue to do what we are doing to ensure the reserves remain on positive trajectory at comfortable levels to be able to sustain the level of growth in our economy.”
All these notwithstanding, Emefiele was cautious when said “there is a need for us to say, listen, we need to consolidate on what we have achieved so far and that is to begin to look at the level of growth again. Looking at growth again also means that while keeping our eyes on those other parameters, let’s see whether we can signal a direction from the monetary policy to the direction of supporting and really accelerating growth in the country.”
Accelerating growth he said “means that we need to push harder to consolidate GDP, we need to push harder to make sure we create jobs and we need to push harder to diversify. So doing this will naturally mean that we are softening gradually but I repeat and it shouldn’t be mistaken that we will continue to do what we are doing, what we have done in the past keeping inflation at a moderated level, we will continue to do so. I think we are moving in the right direction.”
Asked if this new level of easing on the interest rate will put pressure on the Naira, the CBN Governor said, “the answer is a capital NO, I don’t see that. Like I just told you that we have seen stability in the market over the last two to two and a half years and there is no need for anybody to worry. We will withstand any pressure.”
When questioned if Nigeria is prepared for any economic pressure, the governor answered by saying, “we have gone through it in 2015, 2016 and 2017, with the support of everybody, our management and MPC members were able to overcome such challenges and I do not think that there is any challenge that the management of the Central Bank cannot surmount. We would surmount them.”
On the growth projection of 2.7% by the CBN, Emefiele said, “we have actually being in positive growth trajectory in the last five to six quarters with an average GDP growth of about 1.9%. I think that if you look at the trend from 2017 into 2018, we will naturally say that if we push hard, even harder than we have done in the past, that we should be able to attain the 2.7% and 3% growth. What we are just trying to say here is that with the data available, and with consistency and with the push, that we are positive we will be trending towards 2.7% to 3% in growth rate which is actually not fantastic if you consider where Nigeria’s growth trajectory has always been around 5%.
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