Finally, CBN cuts benchmark interest by 0.5%, two years after

…MPR now 13.5%, CRR 21.5% .Directs banks to comply with interest cut

…Says quick implementation of minimum wage’ll stimulate the economy

Mathew Dadiya, Abuja

After about two years of tight Monetary Policy Rate (MPR), the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has loosened its tightening on the benchmark lending rate to 13.5 per cent from consistently held 14 per cent figure held since July 2016.

The 0.5 per cent shift (50 basis point) in MPR reduction is to consolidate on stability recorded by the economy in all fronts; and to spur more lending by Deposit Money Banks (DMBs) in the direction of real and agriculture sector of the economy, two sectors believed to weigh enormous potentials for massive jobs creation.

Briefing Finance correspondents after the MPC meeting on Tuesday, the Central Bank Governor, Godwin Emefiele, at the end of the Committee’s two-day deliberation, said that the Nigerian economy was ripe for rebasing with the last rebasing carried out in 2010.

Emefiele said that of the eleven MPC members in attendance, six voted to reduce MPR by 50 basis points, which is 0.5 per cent, two members voted to reduce MPR by 0.25 per cent that is 25 basis points; while one member voted to reduce it by 100 basis points which is 1 per cent.

The CBN governor said that two members, however, voted to hold MPR at its current level, 14 per cent. 10 members voted to hold all other parameters constant while a member voted to reduce the Cash Reserve Ratio (CRR) by 100 basis points from 22.5 per cent to 21.5 per cent.

In summary, MPC voted to adjust the MPR by 50 basis points from 14per cent to 13.5per cent; retain the asymmetric corridor of +200/-500 around the MPR; retain CRR at 22.5per cent and retain the liquidity ratio at 30 per cent”, it emerged on Tuesday.

According to the central bank boss, there is a nexus between MPC’s decision to lose tightening and make funding available for the real sector.

“The committee was convinced that doing this will further uphold the banks’ commitment to promoting strong growth by way of encouraging credit flow to the productive sectors of the economy.

The MPC also felt that signal 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, real interest rates will still remain positive. “

He, however, explained that there is a relationship between funding Small Medium and Enterprises (SMEs) and reducing rate.

According to him, there is a relationship between lending to not just SME, but to the agriculture, manufacture and the real sectors of the economy and its decision today.

“The reason being that, if you consider the fact that for instance, in January 2017, inflation had attained the level of 18.72 per cent 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.

If you also recall that, sometime February 2017, the 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 per cent; foreign reserves at close to $45billion, 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.

We have proved that there is sustainability in the level of stability in the macroeconomic indices in Nigeria “, CBN governor clarified.

He added that consistent tightening of MPR 14 per cent since 2016, and the new shift represents a phase in the consolidation of the economy.

“Now, having being on this part particularly the MPR at about 14 percent 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 be 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 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 a positive trajectory at least comfortable level to be able to sustain the level of growth in our economy.

“But at the same time, 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 meant 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.

And accelerating growth exactly 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 that 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 “, said Emefiele.

Emefiele dismissed apprehension that the reduction could reinforce pressure on naira, saying CBN can withstand any pressure.

“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 and a half years, and there is no need for anybody to worry. We will withstand any pressure.

Asked if Nigeria is prepared for any economic pressure, the governor said: “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 effect of Cash Reserves Ratio (CRR), Emefiele said: “We received a couple of demands but not many of those demands meet our expectations. Don’t forget that this is money – liquidity that should be serialised in Central Bank as cash reserve requirement.

Making them available to the banks, and doing that we must make sure that they go into the employment and growth stimulating sectors of the economy: agriculture and manufacturing.

We will make sure that this liquidity given to the banks must be for projects and expansion plan.”

“The banks themselves have started dropping the interest rate very marginally.

But we are trying to let them know that in fact, in this case I will say that we are following them, that is why we say that we are signalling.

We are signaling in the sense that with time, this will permeate the entire banking sector and people will begin to see the expected impact “, Emefiele affirmed.

Reacting to MPR cut by 0.5 per cent, Prof. Uche Uwaleke, Head of Banking and Finance department, Nassarawa State University, lauded the decision.

He said: “The reduction in MPR by 50 basis points signals the CBN’s desire to relax monetary policy to support economic growth.

Obviously, it is a right response to the declining inflationary pressure and the relative stability in the exchange rate which have prevailed for quite some time.

Moreover, on the external front, the crude oil price has stabilised around 65 dollars per barrel while the US interest rate normalization has slowed down.

All these must have combined to influence the MPC decision which is expected to increase the flow of credit to the real sector.

“The reduced MPR will also be positive for the capital market as some of the increased liquidity that will ensue will flow into the equities market.

Also, it will be cheaper for the government to issue bonds given that part of this year’s budget deficit will be financed through domestic borrowing”, he said.