Politics

CBN Reduces Monetary Policy Rate: Its Effect.


Central Bank of Nigeria (CBN) has decided to reduce the Monetary Policy Rate (MPR) to 13.5 percent from 14 percent which they maintained for 32 months. The CBN Governor Godwin Emefiele explained that the cut was meant to boost economic growth by making credit accessible to entrepreneurs.


“With the MPR at 14 per cent since July 2016, and with the relative stability we have seen in the macroeconomic variables over the last two and a half years, we just think that this should be the next phase where keeping our eyes on all other parameters, let’s see whether we can signal a direction from the monetary policy, in the direction of supporting and really accelerating growth in the country”


“Accelerating growth effectively means that we have to push harder to consolidate GDP, we need to push harder to make sure we create jobs. Doing this will naturally mean that we are softening gradually. But I repeat and I shouldn’t be misunderstood, that we will continue to do what we are doing, what we have done in the past keeping inflation at moderated levels, and exchange rate stable. We will continue to do so. I think we are moving in the right direction.”.
Godwin Emefiele


Generally monetary policy is a process by which the monetary authority of a country controls either the cost of very short term borrowing or money supply. MPR acts as a baseline for the interest rates in the economy. It usually targets inflation rate to ensure price stability. Commercial banks are expected to adjust their rates to allow Nigerians feel the impact of the monetary easing. It is expected that a reduction in the short-term interest rate would encourage borrowing and increase money in circulation.

Some economists have argued that this is mere window dressing by CBN. According to Odilim Enwegbera who argued that reducing policy rate artificially using liquidity tightening through mopping and forex intervention, synthetically keeps the naira strong, but could not spur growth, let alone support investment, because economic growth is always an outcome of the pro-real sector.


“Liquidity tightening only produces speculation and economic financialisation. Temporarily, it gives government false belief of being domestically creditworthy when the reverse is actually the case.
“Rather than lowering policy rate in an economic environment where liquidity is scarce, it

is better to have high liquidity at higher rates because of what use is the low policy rate without liquidity in the debt markets?”
“We must first overhaul our monetary policy making that was designed to only promote economic growth that takes into account interest of real sector firms, jobs creation and social inclusiveness,”

Both speakers emphasised the importance of job creation but seem to disagree on the reduction reduce the Monetary Policy Rate (MPR) to 13.5 percent. Whose opinions do you agree with? Will the reduction in the MPR affect the number of creditors? Will the bank effect the new monetary rate so that the reduction would be felt by the end customers? Would this new monetary rate improve commerce? Like any action that relies largely on the reaction of human beings, the future is pregnant.

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