By Charles Ike-Okoh
TUE 26 JAN, 2021-theGBJournal- The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) held the monetary policy rate (MPR) at 11.5% and all other monetary policy parameters constant after it rose from its first meetings of the year on the 25th and 26th of January 2021.
The decision to hold was unanimous and that also means that the asymmetric corridor of +100 basis and -700 basis point around the MPR is retained, the CRR is retained at 27.5% and the liquidity ratio is retained at 30%.
The retention of the parameters underscores the apex bank’s use of unorthodox measures such as CRR debits, Loan-to-Deposit Ratio (LDR), and direct intervention in employment-stimulating sectors to influence macroeconomic outcomes and ultimately attain macroeconomic stability.
Moreover, a step away from the current stance would have contradicted previous heterodox policies targeted towards improving the flow of credit to the real sector of the economy and prolong the recovery phase.
Monetary policy tightening could also have created severe financial market turbulence and amplify deficit financing pressures for the government, which the CBN Governor, Godwin Emefiele alluded to in the policy presentation today when he spoke to the huge federal government debt.
‘’The Committee,’’ he said, ‘’expressed concern over the rising public debt stock as recurrent expenditure remains relatively high, compared with capital expenditure, thus signalling future debt servicing challenges.’’
To improve revenue sources and investments in capital, Emefiele said the Committee advised the federal government to take advantage of the take off of the AfCFTA, which could boost domestic production and generate sizable revenue for government as well as providing domestic productivity and competitiveness.
The MPC, according to Emefiele, assessed the developments in the domestic and external macroeconomic and financial markets since its last meeting in November to be able to provide the guidance on the path of monetary policy in 2021.
The Governor noted that rising inflationary pressures alongside fragilities in the balance of payments presented a strong case for monetary tightening, but optimistically projected moderation in near term as the economy’s negative output gap closes.
‘’However, underlining uncertainties in the oil market and current uptick in the second wave of the COVID-19 infection rate may pull some downside risk to these forecast,’’ he warned.
Emefiele said the Committee also noted the moderation in output contraction in the third quarter of 2020 associated with the news of discovery of the COVID-19 vaccines and rising oil prices.
‘’But the recovery outlook however, appears to be dampened by the second wave of the COVID-19 pandemic considering its intensity,’’ a concern shared by many economy watchers.
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