CBN slashes benchmark rate to 13.5 per cent

27 Mar 2019
Financial Nigeria


The CBN Governor said the aim of the rate cut was to stimulate economic growth.

Governor, Central Bank of Nigeria, Godwin Emefiele

In a move that surprised many analysts, the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) has slashed its benchmark interest rate to 13.5 per cent from 14 per cent in an attempt to boost the country’s economic growth.  

The MPC had kept interest rate at 14 per cent since July 2016 to curb inflationary pressures. However, inflation rate has dropped from 16.5 per cent in June 2016 to 11.37 per cent in January 2019. While the Consumer Price Index (CPI) still remains at double digits, the CBN Governor, Godwin Emefiele, who announced the MPC's decision on Tuesday at the end of a two-day meeting, said the aim of the rate cut was to stimulate economic growth.

“This rate cut is meant to signal that there is a need for us to move course a little further. To do so we need to begin to look at money supply, liquidity to push growth,” said Emefiele, whose five-year tenure is due to end on June 2nd. The President has neither nominated the next CBN Governor nor announced an extention of Emefiele's tenure.

According to Reuters, most analysts it polled in January expected rates to be kept on hold through to the middle of the year. The committee also decided to retain the Cash Reserves Ratio (CRR) at 22.5 per cent, the liquidity ratio at 30 per cent; and the asymmetric window at +200 and -500 basis points around the MPR.

Emefiele said six of the 11 MPC members agreed on the 50 basis point rate cut. “Two members voted to reduce the rate by 0.25 per cent, while one member voted to reduce it by one per cent. Two members, however, voted to hold the MPR at its current level,” added the CBN Governor.

Emefiele also said the CBN has projected between 2.3 per cent and 3 per cent economic growth rate for 2019, compared to 1.9 per cent recorded last year.

“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," Emefiele said. “In its argument, the committee was convinced that doing this will further uphold the bank’s commitment to promoting strong growth by way of encouraging credit flow to the productive sector of the economy.”

According to Punch newspaper, a professor of economics at the Olabisi Onabanjo University, Sheriffdeen Tella, described the rate cut as insufficient to boost growth.

“The 0.5 per cent cut in MPR cannot bring any significant relief to businesses; even when it was at 14 per cent, banks were charging 18 to 20 per cent," Tella said. "I expected a reduction of two per cent. The CBN is still much concerned about the inflationary trend but we cannot run away from inflation as long as the cost of production is also high.”

Aggreeing with Tella, Director General, West African Institute for Financial and Economic Management, Akpan Ekpo, said, “Other things should be put in place for the reduction to have an impact on the lending rate. For example, the CBN should continue to pursue its intervention policy in terms of ensuring that banks give loans at single-digit interest rates from several funds that it has with the banks. It should make sure that the SMEs and other industries have access to those loans.”

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