CBN Keeps MPR At 13.5%

• Mulls DMBs’ loan-to-deposit ratios review

BY COBHAM NSA, ABUJA – With differing opinions by financial experts still trailing its monetary policy direction, the Central Bank of Nigeria (CBN) has retained the Monetary Policy Rate (MPR) at 13.5 per cent going forward.

Rising from its two-day Monetary Policy Committee (MPC) meeting in Abuja on Tuesday, the apex bank also retained Cash Reserve Ratio (CRR) at 22.5 per cent and the Liquidity Ratio (LR) at 30 per cent.

In a media briefing on the MPC outcome, CBN Governor, Mr Godwin Emefiele the decision was unanimously taken by all the 11 Committee members at the meeting for the progress and development of the economy.

He said given specific policy options to either loosen, tighten or hold the rates, the MPC decided to focus and consider the growth of the economy as imperative, just as it supports the management of price stability as sacrosanct.

According to him, having fully accessed the consequences of loosening or tightening policy options, the MPC opted to retain its monetary policy’s position, adding that the tightening policy is not an option for the nation’s economy at this period because key macroeconomic indicators are presently trending in the right direction.

Similarly, the apex bank boss explained that  loosening the rates will no doubt increase money supply and stimulate aggregate demand in a manner that domestic production and economy will be awash with liquidity.

Emefiele said in maintaining the current monetary policy rates, the MPC acknowledged that CBN management’s recent moves aimed at engendering credit growth in the real sector would continue to improve credit delivery to the real sector.

The CBN Governor said steadying the monetary policy at current position would ultimately accelerate development and economic growth in the country, adding that with interest rates currently trending downward, it is safer to await the full impact of this policy action on the economy before the MPC’s position is reviewed.

On efforts at growing the Nigerian economy, the MPC challenged Deposit Money Banks (DMBs) to encourage Nigerians in diaspora to always access official channels for remittance of funds to Nigeria.

Furthermore, the MPC urged the banks to be innovative by creating incentives for their customers, especially in the area of slashing charges on diaspora home remittances into the country.

Also highlighting efforts at increasing lending and stimulating economic growth, Emefiele said CBN is set to commence a monthly review of DMBs’ loan-to-deposit ratios from September 30, 2019 if no improvement is witnessed in the sector.

The loan-deposit ratio is a ratio between the banks total loans and total deposits and it is used to calculate a lending institution’s ability to cover its customers’ withdrawals.

He said the MPC believes Nigeria’s economy would benefit greatly by boosting output growth through sustained increase in consumer credit, mortgage loans and granting loans to the Small and Medium Enterprises (SMEs).

The CBN Governor however stated that though the apex bank management is already deploying benchmark loan-to-deposit ratios to redirect banks’ focus to lending, mitigating credit risk in the system has also become imperative.

Emefiele, who placed the loan-to-deposit ratio of Nigeria’s banking industry at 57 per cent, said to achieve the set objective, the MPC is proposing that the de-risking of the financial markets, through the development of a reliable credit scoring system. This should be in line with global best practice as obtained in the advanced economies where DMBs are encouraged to safely grow their credit portfolios.

MPR is the rate at which the CBN lends to the real sector and ultimately, it determines the cost of borrowing investment funds.