By Jennifer Y Omiloli
Years after fixing the interest rate on lending between Money Deposit Banks at 14%, six (6) of the eleven (11) members of the Monetary Policy Committee (MPC), voted to reduce the Monetary Policy Rate by 50 basis points to 13.5%.
The MPC, which comprises of the governor and deputy governors of the Central Bank of Nigeria (CBN), after indications that the economy could absorb increased lending to the real sector of the economy, voted for a reduction in the inter-bank lending rate.
In the communiqué issued by Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, at the end of its two-day meeting held from March 25 to 26, 2019, the MPC said that the government has been unable to generate revenue to support development as “enunciated in the Economic Recovery Growth Plan (ERGP)”.
According to the MPC, this has caused an increase in the government’s cost of borrowing money, “leaving room for continued debt financing, not previously envisaged”.
The 11-member team, whose policy influence is limited to borrowing rates and foreign exchange matters, urged the Nigerian government and the fiscal policy team, the ministries of finance as well as budget and planning, to “closely monitor the public procurement process”.
The communiqué read: “The MPC noted the encumbrances and constraints imposed on fiscal policy and the associated vulnerabilities, as it has consistently failed to mobilise sufficient revenues to support development as enunciated in the ERGP, leaving room for continued debt financing, not previously envisaged. Against this backdrop, it is imperative for monetary policy to provide the much-needed leverage to support output growth and employment generation in the country.
“On a more cautious note, the Committee expressed concern and sympathises with the fiscal authorities, over the growing fiscal deficit, external debt and debt service, and urged the need to closely monitor the public procurement process in order to improve efficiency in public resource management.”
On the global front, MPC holds the view that the macroeconomic indicators appear vulnerable and uncertain.
“The medium-term outlook for the global economy continues to be uncertain with indications of increasing macroeconomic vulnerabilities and downward revision of the forecast for global output growth.
“Developments in the first quarter of 2019 were characterised by legacy headwinds from the second half of 2018. These include: the continued trade war between the US and China, policy uncertainty amongst advanced economy central banks; persisting uncertainties surrounding BREXIT negotiations; vulnerabilities in major financial markets and rising public debt in some Emerging Market and Developing Economies (EMDEs). Consequently, global output growth for 2019 was downgraded by the IMF from 3.7 per cent to 3.5 per cent.”
The team also voted to keep Cash Reserve Ratio (CRR), a percentage of total deposit the bank must not go below, at 22.5 per cent and the liquidity ratio, value of assets that can be quickly turned to cash, at 30 per cent.
