Photograph — Bloomberg

Nigeria’s Monetary Policy Committee (MPC) has maintained the Monetary Policy Rate (MPR) – also called interest rate – at 13.50 percent, while other parameters remain unchanged. The decisions by the Central Bank of Nigeria (CBN) committee were arrived at during a meeting in Abuja.

At the end of the two-day MPC session on Tuesday, July 24, 2019, CBN Governor, Godwin Emefiele, read the communique which revealed that the decision to hold all rates constant was informed by the conviction of members that key macroeconomic indicators are trending in the right direction. 

Key highlights of Committee’s decisions include holding the MPR at 13.50 percent; the asymmetric corridor of +200/-500 basis points around the MPR; Cash Reserve Ratio (CRR) at 22.5 percent; and the Liquidity Ratio at 30 percent.

Based on the need to boost output growth through a sustained increase in consumer credit, mortgage loans and granting loans to Small and Medium Enterprises (SMEs), the committee during the decision process made some observations which eventually led to keeping rates constant.

Against the notion of further tightening the rates, the committee noted that while the focus on growth was imperative, the mandate of price stability remains sacrosanct. Also, considering the fact that inflation is moderating, tightening of monetary policy should not be an option at this time.

On the other hand, loosening the rates could increase money supply, stimulate aggregate demand and strengthen domestic production. However, the committee stated that the economy could be awash with liquidity especially if loosening drives growth in consumer credit without equivalent adjustment in aggregate output.

On holding the current policy rate, the MPC observed that given the recent actions of CBN’s management involving the prescription of minimum lending thresholds by the Deposit Money Banks (DMBs), it is safe to assume that this action, targeted at stimulating credit growth to the real sector would increase credit delivery to the real sector and accelerate investment and economic growth.

Moreover, since interest rates are currently trending downwards, it is safer to await the full impact of these policy actions on the economy before a review of the position of monetary policy.

Meanwhile, the Committee urged the CBN to de-risk the financial markets to mitigate credit risk through the development of a reliable credit scoring system, similar to what applies in the advanced countries. This would encourage DMBs to safely grow their credit portfolios, ultimately improving Nigeria’s economic growth.

The CBN recently mandated all DMBs operating in Nigeria to maintain a minimum Loan to Deposit Ratio (LDR) of 60 percent by September 10, 2019. This means that commercial banks are required to lend out up to 60 percent of their customer deposits, with the ratio subject to quarterly review.

Emefiele stressed that setting the LDR at 60 percent was low when compared to countries such as Brazil (70 percent), the United States (75 percent), China (71.2 percent), India (75 percent), South Africa (91 percent) Kenya (76 percent), and Japan (70 percent). He, therefore, called for cooperation from all quarters in order to effectively grow the economy.

“We need everybody’s support to achieve growth in Nigeria. When the monetary policy raised the concern, we had a flat loan-deposit ratio. We would apply certain sanctions that involve asking the 50 percent of the ‘un-lent’ portions of their loans into the CRR,” Emefiele stated. 

He added that after September 30, 2019 (the deadline), the apex bank will begin monthly monitoring and prescription of deposit loan ratio for the banks. The move is aimed at getting more credit from Nigerian banks, who are among the most reluctant lenders in major emerging markets – with an average LDR of about 40 percent.

On Nigeria’s economic outlook, the MPC stated that the overall medium-term outlook for the global economy remains mixed. This shows an indication of continued softening of global output due to persisting policy uncertainties and sustained macroeconomic vulnerabilities.


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