Despite the disrupting effect of Covid-19 and the oil price war between Saudi Arabia and Russia on the global macroeconomic environment which has forced monetary authorities of many nations to cut rates, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unanimously decided to keep the Monetary Policy Rate (MPR) at status quo at its rescheduled meeting which held on 23rd and 24th of March. As such, the MPR (the rate at which real sector determines the cost of borrowing in the economy) was retained at 13.5% with the asymmetric corridor left at the range of +200/-500 basis point around the MPR. Cash Reserve Ratio (CRR) and Liquidity ratio were also left unchanged at 27.5% and 30% respectively.
The MPC felt that tightening the MPR would result in controlling the rising trend in inflation, support reserve accretion, reduce the money supply and limit DMBs credit creation capacity which would result in an increase in borrowing cost, with opposing impact on output growth. Moreover, the tightening would contradict the recent reduction of interest rate in the CBN intervention windows from 9% to 5%.
On the issue of loosening the MPR, the committee felt this would stimulate the economy in the short term, and boost collective supply and demand. However, they stressed this would worsen the inflationary condition, resulting in huge pressure on the external reserve and exchange rate.