MPC retains lending benchmark after tough deliberations

The Monetary Policy Committee (MPC) had a tough time deciding the benchmark lending rate at its marathon meeting, yesterday. But after voting, the monetary policy rate (MPR) was retained by majority vote, alongside other parameters determining the volume of money in circulation.

Governor of the Central Bank of Nigeria (CBN) and Chair of the Committee, Godwin Emefiele, disclosed that six members opted for hold, as against four that had opposing views.

The MPR was retained at 11.5 per cent around an asymmetric corridor of +100/-700 basis points. The cash reserve and liquidity ratio were also left at 27.5 and 30 per cent respectively.

The decision, however, was not overwhelming. The members were at a dilemma, as inflation had become a major issue.

“The Committee decided to adopt a hold stance, which would indicate a precautionary and consistent policy stance with the prevailing economic conditions, particularly as further economic and financial shocks are exerted from the ongoing Russia-Ukraine war,” Emefiele disclosed.

The Guardian had reported that growing concern about inflationary pressure, global move towards monetary policy normalisation, among others, presented hard choices before the rate-fixing MPC members, as they held their second meeting, earlier scheduled to hold for two days.

A former member of the Committee and professor of economics and public policy, Akpan Ekpo, had called for an upward review of the MPC, saying inflation takes preeminence over growth in determining economic development.

“They left it for too long, hoping that the fiscal side would do its part. But we have not seen much effort from the fiscal authority. If I were still a member of the MPC, I would opt for a rate hike. While growth is important, it is not a sufficient condition for development.

“As prices continue to go up, it hits the poor very hard. So, inflation is very important. If I were still a part of the committee, I would consider the likelihood of a further increase in inflation and tinker with the MPR,” Ekpo had insisted.

But Emefiele said monetary tightening would not necessarily tame inflation. He added that the Committee was also mindful of the fragile growth.

He noted: “In order to rein in the rising price level, MPC was of the view that given the fragile state of the current GDP growth and the potential external and domestic headwinds from the Russia-Ukraine war, a contractionary policy stance would stifle the expected investment expansion needed to drive growth and absorb the shocks in Nigeria.

“MPC also felt that not only would tightening reverse the steady improvement recorded in credit expansion. It was also of the view that tightening would not necessarily tame the inflation, particularly where the marginal decline is relatively not yet sustainable.”