Central Bank of Nigeria Keeps Benchmark Rate at 13 percent

Lagos, Nigeria, Capital Markets in Africa — On 22 September 2015, the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) meeting was held where the MPC resolved to reduce the cash reserve requirement (CRR) to 25 percent from 31 percent, retain the monetary policy rate (MPR) at 13 percent, with the symmetric corridor of 200 basis points around the MPR, and retain the liquidity ratio at 30 percent. 

The MPC decisions were based on a slow and fragile macroeconomic outlook; potential liquidity constraints in the banking sector as a result of implementing Treasury Single Account (TSA) presidential directive; increase in inflation and persistent decline in the global crude oil prices.    

Addressing the media, the CBN Governor, Mr Godwin Emefiele said the MPC members observed that despite the implementation of the treasury single account (TSA), the banking system’s liquidity ratio remained moderate.

“There’s been a lot of speculation in the market about the amount that needed to be moved from the banks to the TSA with the CBN. The truth is that the amount that was moved by banks so far is less than what people have been quoting on the pages of newspapers”.

 “The amount keeps growing but what we are saying is that a lot of people had predicted considerable liquidity squeeze created as a result of this. But the data that the committee reviewed between yesterday (Monday) and today (Tuesday) showed that liquidity ratio indeed increased moderately.

The CBN Governor said that is the reason why the MPC concluded that the impact of the movement of funds from the banks to the CBN in terms of liquidity moderate.

Mr Emefiele, further emphasized that in the light of the prevailing circumstances, there is need to ensure synergy between monetary and fiscal policies for sustainable growth. In addition, he stated that the MPC also noted the impact of the persistent decline in global crude oil prices on the fiscal position of government..

“The committee noted that the overall macroeconomic environment remained fragile. The economy further slowed in the second quarter of the year, making it the second consecutive quarterly less-than-expected performance”

“The committee noted that growth had come under severe strains arising from declining private and public expenditure. In particular, it noted the impact of the non-payment of salaries at the state and local government levels as a key dampening factor on consumer demand”

“Year-on-year headline inflation continued to trend upwards, although the month-on-month measure moderated. Demand pressure in the foreign exchange market remained significant as oil prices continued to decline”.

“Arising from these developments, there were indications that some of the banking sector performance indicators could be stressed if conditions worsen further”¨