The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), maintains a hold in Monetary Policy Rate (MPR) at 13.50%. Also, other parameters such as CRR, Liquidity ratio and asymmetric corridor are equally held constant.
After the recent cut in the Monetary Policy Rate (MPR) by 50 points in March, all hands were on deck as the CBN Governor, Mr. Godwin Emefiele, read the communique at the end of two-day MPC meeting on Tuesday in Abuja. MPR is kept at 13.50 percent. The asymmetric corridor of +200/-500 basis points around the MPR s retained. CRR is held 22.5 percent; and the Liquidity Ratio is also kept at 30 percent.
MPC noted that the global and domestic developments have conditioned an environment of low optimism in the macroeconomic and financial sector space, forcing central banks to return to accommodative monetary policy.
Hence, the Committee considered the options of whether to be more accommodative, tighten or hold its position.
- MPC felt the recent uptick in inflation should lead to tightening MPR but feared it would constrain Deposit Money Banks (DMBs) to increase access to credit.
- As regard loosening, MPC noted lowering rates would aggressively restart the capital activities, and stimulate growth.
- However, MPC noted there is a need to restrain from loosening in order not to exacerbate inflationary pressures
- Also, MPC noted loosening may expose the economy to liquidity surfeit and without a corresponding increase in real sector output
- Hence, the decision to maintaining the monetary policy rate at its present level became essential, for a better understanding of the momentum of growth before determining any possible modifications.
Despite the 2.01 percent growth in Q1 2019, MPC observed that actual output remains below potential, implying that the economy still had sufficient headroom for non-inflationary growth. The MPC stressed that the recent growth in market capitalization reflected new listings in the market, prominent amongst which are MTN and Skyway Aviation Handling Company Plc and additional listing from the merger between Access Bank and Diamond Bank.
However, MPC stressed the Nigerian economy still exhibits some fragility in output growth during the second quarter of 2019. Meanwhile, the committee stated that its revised output projections indicate that the Nigerian economy would grow by 2.38 percent by the CBN in 2019.
In the MPC communique, it was stated CBN should introduce mechanisms to limit Deposit Money Banks (DMBs) access to government securities so as to redirect bank’s lending focus to the private sector.
The implication of this is that, by dissuading banks from investing in treasury bills and other government securities, CBN is basically triggering less demand in its bills which could lower yields on TBills. It means anyone looking to buy treasury bills should start to look forward to even low yields.