The Central Bank of Nigeria, CBN, on Monday pegged the benchmark lending rate at 12.5 per cent, sustaining the Monetary Policy Rate, MPR, announced in May.
The Governor of the apex bank, Godwin Emefiele, announced that the decision was arrived at after 8 of the 10 monetary policy committee members voted to retain the rate and two voted for a reduction in the lending rate.
Emefiele explained that the decision was likely to raise the cost of production leading to high prices of goods and services.
“Loosening monetary policy stance would provide the succour for stimulating output growth and rapid recovery but with implications for domestic private investment and capital mobilisation to support the huge domestic financing gap,” he said.
It is the largest cut on the lending rate since 2015, though the lending rate was slashed by 100 points from 13.5 per cent to 12.5 per cent in May.
He stated further that the MPR may not necessarily lead to a reduction in the market interest rate due to the current economic realities.
“Available data from the National Bureau of Statistics show that real Growth Domestic Product (GDP) grew marginally by 1.87 per cent in the first quarter of 2020 compared with the 2.25 per cent and 2.10 per cent in the proceeding and corresponding quarters of 2019,” he said.
The central bank has kept interest rates tight for the last two years to curb inflation, support the naira and attract foreign investors to its debt market.
Describing it as a “relatively cautious option” to hold rates in order to assess the effectiveness of policy actions already taken to counter the effects of the COVID-19 pandemic.
In April, the country’s annual inflation increased by 12.34 per cent which was at its peak in more than two years, as measures to curb the pandemic hindered economic activity.
“The Committee noted at the meeting that the economic fundamentals marginally improved by the end of June 2020, following the gradual pickup of economic activities as the positive impacts of the various interventions permeate within the economy.
“The earlier downward adjustment of the MPR by 100 basis points to 12.5 per cent to signal a loosening policy stance is yielding positive impacts as credit growth increased significantly in the economy,” he said.
