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Central Bank Monetary Policy Committee votes unanimously to hold Monetary Policy Rate at 11.5%

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Godwin Emefiele
Godwin Emefiele, CBN Governor

By Audrey Lotechukwu

TUE 25 MAY, 2021-theGBJournal- The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) voted unanimously Tuesday to retain the Monetary Policy Rate (MPR) at 11.5% while holding all key parameters constant, in line with market expectations.

The Cash reserve ratio is retained at 27.5%, the liquidity ratio at 30% while the apex bank MPC also voted to maintain asymmetric window of +100 and -700 basis points around the MPR.

The CBN governor Godwin Emefiele who delivered the verdict said the decision to hold is expected to allow further economic growth, after the country exited recession in Q4 2020, and amid increasing inflation rate.

The MPC expressed confidence that the economy will remain on growth pedestal over the rest of the year.

Cordros Research view is that the unimpressive GDP growth of 0.51% in Q1-21 may have prompted the hawks to align with the broader view of the Committee that an accommodative monetary stance is still required to restore the productive capacity of the economy and bridge the negative output gap.

On Inflation: The Committee noted the moderate decline in headline inflation y/y to 18.12% y/y from 18.17% y/y in March, driven by a marginal slowdown in food inflation. The Committee attributed the slowdown in food inflation to the CBN’s major interventions to the various sectors of the economy to stimulate aggregate demand and boost production, particularly to the MSMEs. Accordingly, the Committee expects the inflationary pressure to begin to ease as an improved supply of goods begins to offset the demand.

On Foreign Exchange: The Central Bank Governor stated that the change in the official exchange rate to the NAFEX rate was necessitated by the fact that government transactions were no longer consummated using the official exchange rate but rather benchmarked against the NAFEX rate. He further reiterated that Nigeria still operates a managed-float exchange rate regime.

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