The Central Bank of Nigeria(CBN), yesterday, jerked up its Monetary Policy Rate (MPR)to 14 per cent, attracting criticism from business experts who predicted that the hike will lead to increased corporate failures, unemployment and decline in the nation’s stock market.
At the end of its Monetary Policy Committee (MPC) meeting in Abuja yesterday, the CBN, raised the MPR from 12 percent to 14 per cent, while retaining the Asymmetric Window at +200 and -500 basis points around the rate.
The apex bank also retained the Cash Reserve Ratio (CRR) and the Liquidity Ratio at 22.50 per cent and 30.00 per cent, respectively. Governor of the CBN, Mr. Godwin Emefiele, who announced the outcome of the MPC meeting, said that the move was towards ensuring price stability as it would attract more inflow of foreign exchange into the country.
Justifying the new rate, he said, “Basically, the issues were that you notice during the May meeting, the MPC decide to say look, if we notice the balance between inflation and growth that we should stay with growth and expect that growth. But given the fact that monetary authorities cannot directly influence, we expect that working with fiscal authorities, we can achieve growth But at this meeting, we took a lot of time to deliberate on whether to favour growth as against inflation.
“We felt that there was a need in line with the CBN core mandate to look at price stability at a time- that if we favour price stability at this time and it signals an interest rate movement that will curtail inflation that when we curtail inflation, a lot more stakeholders interests would have been met, thereby encouraging in this case the inflow of capital into the country.
“And as we have more inflow of foreign exchange into the country, what that does is that it deepens forex supply base and by deepening the forex supply base it makes forex available to end users , particularly to the manufacturing sector who need raw materials to boost manufacturing and industrial capacity and we are also hoping that when this is achieved, what you find is that naturally, prices would be affected downwards.
“When you have a situation when foreign exchange is also made available to those who want to import agriculture inputs, insecticides or plants it helps to boost agric productivity which will also help to moderate the effects on prices downwards.
“What this does is that it generally creates activities that would boost not just manufacturing outputs but will indirectly push growth forward.
That was purely the essence of let’s push to the direction of inflation and price stability which was the focus of this meeting against growth. “It didn’t mean that we didn’t have growth at the back of our minds.
But we felt let’s start by looking at price stability. Push towards curtailing inflation, and at the same time ultimately see how we can achieve growth in the same vein.”