Posted Wed, Sep 23, 2020 11:57 AM

MPC cuts benchmark interest rate by 100 basis points over recession fears

The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) held its penultimate meeting for the year 2020 on September 21-22. At the meeting, 6 out of 10 committee members voted for a reduction in the Monetary Policy Rate (MPR) by 100 basis points to 11.5%. The committee with a vote of 9 to 1 members agreed to adjust the asymmetric corridor to +100/-700 basis points around the MPR from +200/-500 basis points. However, MPC members unanimously agreed to keep the Cash Reserve Ratio (CRR) and Liquidity Ratio at 27.5% and 30%, respectively. The current MPC decision represents the second time in the year 2020 that the monetary policy stance would be more accommodative (see Figure 1). The MPC members met at a time when the Nigerian economy is battling with the fall-out from the coronavirus pandemic including economic contraction (at -6.1% in Q2’2020), high unemployment rate (at 27.1% in Q2’2020), rising inflation rate (at 13.2% in August 2020), declining foreign investment inflows (plunged to $1.3 billion in Q2’2020), widening trade deficits (stood at -1.8 trillion in Q2’2020), falling crude oil prices (down 44% year-to-date), weak external reserves (currently at $35.8 billion) and rising public debt (at N25.7 trillion in Q2’2020).

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