The Central Bank of Nigeria held its monetary policy rate at 13.5 percent during its July meeting, as widely expected, as inflation rate remains well above the bank's target range of 6-9 percent and GDP growth remains subdued. The bank's governor Godwin Emefiele said at a press conference he is not in a hurry to bring interest rates down, but will start reviewing bank's loan to deposit ratio after September 30th aiming at increase lending and stimulate growth.
Excerpts from the Central Bank of Nigeria's monetary policy statement:
7/23/2019 5:16:40 PM
The overall medium-term outlook for the global economy remains mixed with indications of continued softening of global output due to persisting policy uncertainties and sustained macroeconomic vulnerabilities. These are likely to be accentuated by the increasing trade tensions between the US and its major trading partners, rising debt levels and geo-political tensions.
On the domestic economy, output growth in 2019 is expected to remain weak, peaking at 2.27 per cent, while inflation is projected at 11.37 per cent by the CBN staff projections by end-2019. The underlying arguments in favour of this forecast include: favourable oil prices; stable exchange rate; moderate inflationary pressures; enhanced flow of credit to the private sector; sustained CBN interventions in the real sector; effective implementation of the Economic Recovery and Growth Plan (ERGP); building fiscal buffers; and improved security in the food producing areas of the country.
In consideration of the specific policy options to adopt; to hold, loosen or tighten, the MPC made the following observations: (i) Whilst the focus on growth was imperative, the mandate of price stability remains sacrosanct; (ii) Given the happenings in the external sector and the fact that inflation is moderating, tightening of monetary policy should not be an option at this time, as restriction of the capacity of the DMBs to create money could curtail their credit creation capabilities.
On the contrary, the Monetary Policy Committee (MPC) was of the view that, whilst loosening could increase money supply, stimulate aggregate demand and strengthen domestic production, the economy could be awash with liquidity especially if loosening drives growth in consumer credit without commensurate adjustment in aggregate output.
On holding the current monetary policy position, the Monetary Policy Committee (MPC) observed that given the recent actions of the Bank’s management involving the prescription of minimum lending thresholds by the deposit money banks to our Deposit Money Banks (DMBs), it is safe to assume that this action, targeted at stimulating credit growth to the real sector would increase credit delivery to the real sector and accelerate investment and economic growth. It also observed that since interest rates were currently trending downwards, it is safer to await the full impact of these policy actions on the economy before a review of the position of monetary policy.