CBN retains lending rate at 13.5%, warns NASS on revised oil benchmark

With the Coronavirus pandemic ravaging the entire world and causing economic shutdowns, the Central Bank of Nigeria (CBN) has warned the National Assembly (NASS) not to tamper with revised oil benchmark of $30 per barrel.

CBN Governor Godwin Emefiele gave the warning in Abuja Tuesday while briefing the media after the Monetary Policy Committee (MPC) meeting.

Emefiele commended the fiscal authorities for reacting speedily to the threats posed to the economy by COVID-19 by slashing the 2020 budget by ₦1.5 trillion and also pegging the crude oil benchmark price at $30 from $57.

The CBN boss cautioned the legislators not to further tinker with the new benchmark price as such may likely end up being unrealistic.

After the bi-monthly meeting, Emefiele disclosed that members of the committee unanimously agreed to retain all the key rates and parameters changed.

By this development, MPC retained the Monetary Policy Rate (MPR) at 13.5 per cent; +200/-500 assymetric corridor around the MPR; Cash Reserve Ratio (CRR) at 27.5 per cent and Liquidity Ratio at 30 per cent.

The MPC underscored the COVID-19 pandemic as a public health crisis that may “undermine any monetary or fiscal stimulus unless appropriate measures are taken to trace, test, isolate and treat infected persons in order to curtail the spread.”

Emefiele and other MPC members urged the federal government to ensure “that migration across the country is significantly reduced.”

The apex bank boss said, “We call on the federal government to take the necessary steps to safeguard the population through close monitoring and emergency readiness measures to identify and care for infected persons in the country, including compulsory restriction of movement to curtail spread of the pandemic.”

With regards to the banking industry, the committee noted the sustained improvement in the financial soundness indicators, and applauded “the continued decline in the ratio of non-performing loans, growth in assets of the banking system and profitability of the industry in the light of increasing global uncertainties.”

On the choices before the committee, Mr. Emefiele stated that the MPC noted the recent actions of the bank, targeted at strengthening the resilience of the financial system and alleviating the initial impact of the crisis and therefore felt that tightening would result in reining in the rising trend in inflation, and that it would support reserve accretion.

He explained that such an action would reduce money supply and limit the credit creation capacity of Deposit Money Banks (DMBs), thus resulting in increasing the cost of credit, with adverse impact on output growth. 

“As for the option of tightening which the committee believed would also result in a reduction in aggregate demand as a fall in disposable income results in output compression, whereas at this time, policy emphasis should be on stimulating aggregate supply and demand, both already weakened by COVID-19. 

“With respect to loosening, whereas the Committee felt it would stimulate the economy in the short term, and boost aggregate supply and demand, the Committee nevertheless, was of the view that there was a need to be cautious in loosening given the fact that it would exacerbate an already worsening inflationary condition, resulting in massive pressure on reserves and the exchange rate,” Emefiele explained. 

He further disclosed that the Committee, in reviewing the CRR, which was increased at the last MPC meeting, time was required for its full effects to manifest, adding that increasing the MPR would be contradictory to the recent reduction of interest rate in the CBN intervention windows from 9 to 5 per cent.

“Besides, an increase in MPR will be taken by the Deposit Money Banks (DMBs) as in invitation to increase lending rates and this will be most undesirable now when efforts are being made to avert a recession as there are no guarantees that reduction in the MPR, will encourage the Deposit Money Banks to reduce lending rates,” he further said.

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