ABUJA (Sundiata Post) – The much awaited Monetary Policy Committee (MPC) meeting has come and gone with the decision seen in many quarters as a sigh of relief for the financial markets as the Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate (MPR) from 12% for 14% and retained Cash Reserve Ratio (CRR) for 22.5%. The apex bank also retained the Liquidity Ratio at 30 percent.
Prior to now, various analysts had predicted an increase in interest rate to curb the skyrocketing inflation battering Nigeria’s economy.
According to the MPC committee, “The Committee, in its assessment of the relevant risk profiles, came to the conclusion that although, the balance of risks remains tilted against growth; previous decisions need time to crystalize. Consequently, in a period of stagflation, the policy options are very limited.”
“To avoid complicating the conditions, the Committee decided on the least risky option to hold. The foreign exchange market framework, now ready, the MPC voted unanimously to adopt greater flexibility in exchange rate policy to restore the automatic adjustment properties of the exchange rate.”
“Consequently, all 9 members voted to hold and introduce greater flexibility in managing the foreign exchange rate. The Bank would however, retain a small window for funding critical transactions. Details of operation of the market would be released by the Bank at an appropriate time.”
It is noteworthy to state that the apex bank retained the Asymmetric Window at +200 and -500 basis points around the MPR and introduced greater flexibility in the inter-bank foreign exchange market structure will a bid to retain a small window for critical transactions.
While this would enable business manage their interest rates and still afford more borrowing fears of an increase in inflation is not unfounded. Last week, Nigeria Bureau of Statistics, NBS said headline index increased by 16.5% (year-on-year), 0.9% points higher from rates recorded in May (15.6%).
It will also be interesting to see what the ‘greater flexibility’ in the inter-bank foreign exchange market will do to increase USD liquidity in the market.