In a bid to stimulate the economy and enable It withstand the negative impact of the coronavirus pandemic, the Central Bank of Nigeria’s Monetary Policy Committee (MPC) has announced the reduction of its benchmark interest rate, the Monetary Policy Rate (MPR) to 12.5 percent from 13.5 percent.
The CBN Governor, Mr Godwin Emefiele, who made this known the end of the MPC meeting in Abuja, said seven members of the committee voted to cut the MPR by 100 basis points, while two members voted for a 150bps rate cut with one member electing for a 200bps rate cut.
“The MPC observed the weakening of the global macroeconomic environment due to the adverse impact of COVID-19 and drop in crude prices which has resulted in negative outputs for most economies.
“Excess liquidity engendered by loosening may overshoot the economy’s capacity and accelerate inflationary pressures, it nevertheless feels that given the slow rate of acceleration of inflation, the accommodative stance will stimulate aggregate demand and supply in a short term.
“This is because an accommodative stance through a lowering of policy rates will stimulate credit expansion to critically important sectors that will also stimulate employment and revive economic activities for quick growth recovery.
“Policymakers must take action to stimulate growth and recovery. For Nigeria, although first-quarter gross domestic product turned out pleasantly at 1.87 percent and the race of inflation somewhat moderated, Nigeria may escape a recession if concerted efforts are sustained to stimulate output,” Mr Emefiele explained.
On why the MPC decided against a tightening monetary stance, the CBN Governor explained that a tightening would also increase the cost of credit, reduce investment and impact negatively on output growth.
“A hold may indicate that the monetary authorities are insensitive to prevailing weak economic conditions. There is, therefore, the need to signal a direction towards immediate recovery,” he added.