The Central Bank of Nigeria (CBN) held its bi-monthly Monetary Policy Committee (MPC) meeting today September 22, 2020. The majority of the committee members voted to reduce the benchmark lending rate by 100bps.
• Monetary Policy Rate (MPR) lowered by 100bps to 11.50%.
• The asymmetric corridor around MPR reviewed to +100/-700bps from +200/-500bps.
• Cash Reserves Ratio (CRR) remained unchanged at 27.5%.
• Liquidity Ratio (LR) remained unchanged at 30.0%.
The committee considered developments in the global and domestic economy since its last meeting including; the mounting pressure of the second wave of the virus in some of the largest economies in the world, the continued commitment of global central banks to a dovish monetary stance and falling crude oil prices owing to demand worries.
In Nigeria, the committee noted in the meeting; falling crude oil revenues, poor investors’ confidence and a spike in the unemployment rate. From the meeting, we deduced the committee’s core focus would be on reflating the economy to revive the anaemic output growth we have seen for the first half of this year as the Governor of the Apex Bank noted that the rate cut will further push credit to the real sector with its multiplier effect on boosting output while lowering prices of goods and services.
He further stated that the bank will intensify its focus on using Development finance tools to prop up the economy. Going by the notes from the meeting and current market events, we expect to see continued counterintuitive measures (LDR and CRR debits) which will be channelled to curb any speculative pressures that may result from excess liquidity while achieving monetary stability. These measures in our opinion might limit the goal of the Apex Bank.