CBN maintains Hold in first MPC meeting for 2019

The Central Bank of Nigeria at its first Monetary Policy Committee (MPC) meeting for the year opted to leave the Monetary Policy Rate and all other variables unchanged.

The decisions 

• Monetary Policy Rate (MPR) was left unchanged at 14%.
• Cash Reserve Ratio (CRR) was left at unchanged at 22.5%.
• Liquidity Ratio (LR) was left unchanged at 30%

MPR is the interest rate at which the CBN lends to the commercial banks. The MPR is the benchmark against which other lending rates in the economy are pegged and is usually used as an instrument to moderate inflation in the economy.

An asymmetric window at +200 and -500 basis points around the MPR, simply means the MPR can either go up by 2% or drop by 5%, in the event of an adjustment.

CRR is the ratio of customer deposits (i.e. your money in the bank) banks are expected to hold as cash or keep with the CBN.

Liquidity ratio refers to the amount of highly liquid assets that banks should hold in order to meet their financial obligations to customers.

The rates have thus been left unchanged for the 15th consecutive time since July 2016.

Why were rates left unchanged? 

In a communique read after the meeting, CBN Governor Godwin Emefiele had stated that the possibility of loosening the rates was remote due to domestic and global inflationary pressures.

Tightening, on the other hand, would increase the cost of credit as well as elevating credit risk in the economy. In addition, it would worsen the position of non-performing loans with the bank, as well as hamper the fragile growth rate.

Implications 

For businesses expecting lower interest rates, they may have to wait a while, as the apex bank may not cut rates in the medium term.

The move has a neutral effect, for investors holding treasury bills. Tightening would have led to higher yields while a cut would have led to lower yields.