The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) has voted unanimously to tighten the monetary policy by retaining the Monetary Policy Rates (MPR), otherwise known as interest rates at 12%, but voted for an increase in the Cash Reserve Ratio (CRR), according to a communiqué posted on the CBN website.
The communiqué, reportedly read by the acting Governor of CBN, Dr. Sarah Alade, at the close of a two-day meeting of the MPC Tuesday in Abuja, the Nigerian capital city, noted that while some members voted for an increase of the interest rate to retain and attract more inflows, others felt that such increase could impact negatively on access to credit and domestic growth.
According to the communiqué, “Five members voted to keep MPR at 12%, while four members voted for an increase in MPR. Seven members voted to retain the MPR corridor at /-2%, while two members voted for an asymmetric corridor.
“Seven members voted to increase CRR on private sector deposits by 300 basis points to 15%, while two members voted to retain the CRR on private sector deposits at 12%”, the communiqué said.
The Committee decided by a majority vote of 5 to 4 to hold the MPR at 12% and its corridor at current levels but raised the CRR on private sector deposits by 300 basis points to 15%.
It maintained that prudent monetary stance would also facilitate better reserve and exchange rate management in an environment where Fed tapering increases pressure on emerging economies financial markets.
The MPC which was the first one after the suspension of CBN Governor, Lamido Sanusi Lamido, expressed concern that the industrial sector has continued to lag behind.
MPC noted that growth remained consistently in favour of the agricultural sector, noting that the continued achievement of relative exchange rate stability and single digit inflation in 2014 given the risks in the horizon will require extra-ordinary measures.
It explained that the recent pressure in the foreign exchange market was in response to key developments in the US over the Fed’s unwinding of its assets purchase programme.
“In addition, the pressure on external reserves was deemed to be consistent with the seasonal annual payment of dividends to foreign investors.
“On a positive note, inflation forecasts indicate that food inflation may not grow beyond current levels, especially with bumper harvests expected in 2014,” the communiqué said.
However, the Committee noted that core inflation could rise, adding that frontier markets were positioning themselves to attract higher capital inflows by raising their policy rates to contain inflation and also remain competitive.