By Emeka Ejere
The Central Bank of Nigeria (CBN), Governor Mr. Godwin Emefiele, said the apex bank kept its main interest rate on hold at 14 percent, for the eleventh consecutive time, on Tuesday to counter inflationary risk while introducing an initiative aimed at increasing liquidity to businesses.
Emefiele, said the decision to hold the benchmark interest rate at a record high level of 14 percent, which it has maintained since July 2016, was made at a meeting of 10 members of the monetary policy committee (MPC).
“The committee decided by a vote of seven members to retain the monetary policy rate at 14 percent. Two members however voted to increase the MPR (monetary policy rate) by 50 basis points, one member voted to cut it by 25 basis points,” he said.
Nigeria, Africa’s biggest crude producer, emerged from its first recession in 25 years in 2017. The CBN is looking for ways to boost credit to the economy while keeping a lid on inflation so as not to stifle growth.
Emefiele said the bank would encourage large companies to issue commercial paper at lower yields and would consider releasing funds to banks that lend to businesses at single digit rates.
“In order to achieve the objective of lowering interest rates… we would encourage large corporates to issue commercial paper notes in the market,” he said.
The central bank, worried about the liquidity injection from the government’s recently approved 2018 budget, said it could invest in commercial paper issued by companies to create jobs.
The CBN governor said the monetary policy committee expressed concern that credit to the real economy was falling and there was a need to incentivise deposit money banks to increase credit.
An extract from the communiqué of the MPC meeting reads:
“Overall, the MPC was of the opinion that, while it is difficult to encourage job creation in an environment with deficit infrastructure, the Committee believes that the Bank should continue to encourage deposit money banks (DMBs) to increase the flow of credit to the real economy to consolidate economic recovery. In this regard, the Committee believed that a heterodox approach to reform the market in order to strengthen the flow of credit would be appropriate at this time.
“Consequently, credit constrained businesses, particularly the large corporations are encouraged to issue commercial paper to meet their credit needs and the Central Bank of Nigeria may, if need be, buy those instruments to complement the efforts of the DMBs. In addition, as a way of incentivise deposit money banks to increase lending to the manufacturing and agriculture sectors, a differentiated dynamic cash reserves requirement (CRR) regime would be implemented, to direct cheap long term bank credit at 9 per cent, with a minimum tenor of seven (7) years and two (2) years moratorium to employment elastic sectors of the Nigerian economy. Details of this framework are being worked out by the Banking Supervision, Monetary Policy and Research Departments of the Bank and would be released soon.
“In consideration of the foregoing, therefore, the Committee decided by a vote of Seven (7) members to retain the Monetary Policy Rate (MPR) at 14.00 per cent alongside all other policy parameters. Two (2) members, however, voted to increase the MPR by 50 basis points, while one (1) member voted to increase the MPR by 25 basis points.”