The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has cut down the benchmark lending rate from 14 percent to 13.5 percent to further promote economic growth.
The Central Bank Governor, Mr Godwin Emefiele said this when he briefed newsmen in Abuja on Tuesday on the outcome of the 266th Monetary Policy Committee meeting.
This is the first time the rate has been altered since July 2016.
Emefiele said all 11 members were present at the meeting and six out of 11 of them voted to reduce the Monetary Policy Rate (MPR) by 50 basis point.
Two members voted to reduce the MPR by 25 basis point, another two members voted to hold the MPR at 14 percent while one member voted to reduce it by 100 basis point.
While ten members voted to hold all other parameters at the present rate, only one member voted to reduce the cash reserve ratio.
To this effect, he said the Cash Reserves Ratio (CRR) remain unchanged at 22.5 percent, liquidity at 30 percent and Asymmetric corridor at +200 and -500 basis points around the MPR.
“The committee felt that given the relative stability in the key macroeconomic variables, there is a need to signal a new direction and in which case we are talking about being pro-growth.
“In its argument the committee was convinced that doing this would further uphold the bank’s commitment to promoting strong growth by way of encouraging credit flow to the productive sector of the economy.
“The MPC also felt that signalling through loosening by a marginal rate will serve to manage the sentiment in the capital flow market owing to a wider spread in yields in the emerging market and developing economies relative to the advanced economies.
“Moreover the real interest rate will still remain positive’’, the Central Bank’s Governor said.
On the overall outlook and risks, the CBN governor said forecasts of key macroeconomic variables indicate a positive outlook for the economy in 2019.
Furthermore, the committee also harped on the need to debase the Gross Domestic Product (GDP) of the country, which was last carried out in 2010.
His words: “The committee however expressed concern and sympathizes with the fiscal authorities over the growing fiscal debt, fiscal deficit, external debt and debt servicing.
“The committee also noted the improvement in financial systems stability and the soundness in key financial indicators.
“The MPC also commended the Federal Government for the settlement of debt owed oil marketers which has helped considerably in reducing the non-performing loans in the banking industry.
“They also urged the government to further settle outstanding arrears to its contractors.”
Emefiele reiterated the apex bank’s commitment to providing the necessary leverage to support economic growth and development in the country.
The Monetary Policy Rate (MPR) controls the cost of short-term borrowing, money supply, lending rate, interest rate and inflation in an economy.
It ensures price stability and general trust in a country’s currency.
Simply put, MPR is the baseline interest rate and every other interest rate used within an economy.