CBN retains interest rate, warns against second lockdown

THE Central Bank of Nigeria (CBN), on Tuesday, retained the monetary policy rate (MPR), which is the benchmark interest rate in the country, at 11.5 percent.

The MPR was first reduced from 12.5 percent to 11.5 percent after the Monetary Policy Committee (MPC) meeting in September 2020.

Rising from the first MPC meeting in 2021 on Tuesday, Godwin Emefiele, CBN governor, announced the retention of the liquidity ratio at 30 percent and cash reserve ratio (CRR) at 27.5 percent.

Conveying the position of the MPC, Emefiele said the committee dissuaded the federal government from having another total lockdown, stressing that such would be damaging to the Nigerian economy.

Godiwn Emefiele, CBN Governor

He noted that the MPC advised the federal government to deploy fiscal stimulus to facilitate economic recovery and put Nigeria on the growth path.

“Japan provided stimulus package valued at 66.9 percent of its 2019 GDP. The UK was 45.04 percent; the USA, 28.4 percent; Brazil, 27.6 percent; South Africa, 12.6 percent; China, 11.5 percent; India, 10.0 percent; and Russia 7.1 percent, compared with Nigeria’s paltry 4 percent,” he said.

Emefiele insisted that the CBN would continue to finance the federal government through ‘Ways and Means.’

The phrase ‘Ways and Means’ is a mechanism by which a central bank provides credit to the government to plug its budget deficit.

According to Emefiele, there was nothing wrong with providing support for the government (by this means) to enable it fulfill its obligations.

He said it would be “irresponsible on the side of the CBN as the lender of last resort not to support the government” if it could not finance its obligations, stressing that the apex bank would continue to fund manufacturing, agriculture and other development initiatives.

    Through Ways and Means, the CBN supported the federal government to the tune of 2.8 trillion naira as of the end of 2020. Critics say the apex bank is breaking its own rules and simply prints money to plug the government’s budget loopholes. But the CBN government dismissed the criticism, saying that it was not unusual to do so.

    A  Global rating agency, Fitch, had last week said that the CBN was jeopardising Nigeria’s macroeconomic stability by repeatedly providing Ways and Means support to the federal government, pointing out that it was making inflation control and naira stability difficult. But Emefiele said it unfair and unfortunate to hold such views.

    According to Vetiva research analysts. the MPC decision to hold rates and all parameters would bolster the equity market, enabling it to “be positively patronised in the short- term, as investors’ continue to channel funds to attractive counters while seeking alpha returns.”

    As of the close of the stock market on Tuesday, Airtel, Flour Mills, WAPCO, MTNN and Fidson had pushed the market higher by 260 billion naira.


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