Central Bank of Nigeria, raises lending rate to check inflation
The Central Bank of Nigeria (CBN) yesterday raised further the lending rate, otherwise called Monetary Policy Rate (MPR) by 75 basis points from the 8 percent rate adopted two months ago to 8.75 percent.
The Monetary Policy Committee also decided to maintain the symmetric corridor of +/- 200 basis points around the MPR as part of sustained decisions of monetary policy tightening efforts over the past year.
In May, the CBN had raised lending rate by 6.67 percent, or 50 basis points, from 7.5 percent to 8.0 percent, with the symmetric corridor left unchanged at +/- 200 basis points, while increasing cash reserve ratio (CRR) from 2 percent to 4 percent with effect from June 8, 2011 to align with the next reserve averaging maintenance period.
The new rate, which was one of the highlights of decisions announced by the CBN governor, Sanusi Lamido Sanusi, at the end of the Monetary Policy Committee (MPC) meeting in Abuja, is to maintain some level of price stability in the economy.
This is in spite of the recent decline in inflation rate and the slowdown in the Gross Domestic Product (GDP) growth rate as well as a dip in credit to private sector, which has necessitated the need to maintain rates at current levels.
Analyst say the upward adjustment in the lending rate may have been a proactive measure by the CBN to check the possible inflationary impact of projected increasing fiscal entrenchment in the economy in the months ahead.
Mr Sanusi, who spoke on current developments in the American and Asian economies and their potential risks to developing economies, particularly those with huge dependence on crude oil exports for foreign exchange earnings, said the outlook of the global economy appeared to be uncertain in the months ahead thereby justifying the need to take proactive policies that will help absorb the likely backlash of the unfolding ugly developments.
At the domestic level, the CBN boss disclosed that recent measures adopted by the regulatory bank to tighten monetary policy and achieve a fairly stable financial sector, including the deadline set for the recapitalisation of the intervened banks, funding of the foreign exchange market and the limit placed on the foreign exchange sales to the BDC, amongst others had helped in achieving macroeconomic stability even as efforts to provide bank credit to the real sector still remains a major hurdle.
He expatiated on the committee's considerations, pointing out that "the committee recognised the decline in inflation rate and the slowdown in GDP growth rate as well as credit to private sector which would ordinarily advice maintaining rates at current levels. However, the consensus of the Committee is that the outlook is uncertain due to dark clouds on the international horizon and the rising spectra of a structural fiscal deficit.
"In view of the need to proactively address the impact of huge injections of liquidity in the third quarter to correct the negative real interest rate situation in the market and attract foreign capital inflows to build up reserves to protect the economy against possible external shocks, the committee decided as follows: to "tighten the monetary policy by a majority of 10 to 2; to raise the MPR by 75 basis points from 8.0 percent to 8.75 percent and to maintain the corridor at +/-200 basis points around the MPR", he added.
Increase in reserves
Meanwhile, the committee reported a 5.77 percent increase in the gross external reserves from the $31.89 billion attained as at 3oth June to $33.73 billion as at 21st July, 2011 due to higher crude oil exports volume and higher oil market. The increase, according to the committee, remained a major concern in view of the positive indices of the international oil market.