By Dayo Omoogun
The Monetary Policy Committee of the Central Bank of Nigeria at its 299th meeting held on the 19th and 20th of February, 2025 unanimously opted to retain all parameters at their previous levels. Interestingly, all members of the committee were in attendance at that meeting.
The MPC comprises mainly the Central Bank board and management personnel with a few others as specified by Section12 subsection 2a to e of the CBN Act as follows:
a. The Governor of the Bank
b. 4 Deputy Governors of the Bank
c. 2 Board Members of the Bank.
d.3 members appointed by the President of the Federal Republic
e.2 members appointed by the Governor of the Bank.
To wit, the decisions are as follows: retain MPR at 27.50 percent, retain the asymmetric corridor around the MPR at +500/-100 basis points, retain the Cash Reserve Ratio (CRR) of Deposit Money Banks at 50.00 percent and Merchant Banks at 16.00 percent and retain the Liquidity Ratio at 30.00 percent.
While it might be too elementary to finance experts, economists, bankers and other stakeholders, there might be some value in explaining the above terms as there might just be a few uninitiated who need help in decoding this esoteric language as it were.
The Monetary Policy Rate is the rate at which the CBN lends to the Money Deposit Banks ( MDBs) with the purpose of managing money supply, inflation and lending rates in the larger economy.
Cash Reserve Ratio is a percentage of Cash which the Deposit Money Banks and Merchant Banks must keep with the Central Bank to ensure optimum levels of money supply in the market.
The Liquidity ratio can be sub divided into 5 types but generally speaking is a measure of how quickly an organisation can meet up with its cash obligations.
Assymetric Corridor refers to a mandatory range of interest rates between a ceiling and a floor which guides the lending and borrowing decisions of banks.
In the final analysis, the basic purpose of all this is to avert destructive levels of volatility which can upend the economy. The whole existence of Central Banks the world over centre essentially around ensuring economic stability through the deployment of appropriate policy instruments from time to time.
It is hoped that this explanation of terms provides deeper insight into the workings and decisions of the MPC especially for millons of citizens who desire a clearer understanding of the dynamics.
So the Committee takes a stand at any point in time based on what the set target is, whether to tame inflation or money supply or to encourage spending or boost lending rates and so on and so forth. It also takes into consideration global trends, as well as how micro and macroeconomic levels present.
From all indications, the Committee took the decision to hold all parameters having looked at the current rebasing of the Nigerian economy, the United States effort at externally generating revenue which in practical terms translates to higher tariffs on their imports, the lull in the Russian / Ukraine war which may ultimately flow into a cessation of hostilities as well as the thaw in the frosty exchanges between Israel and her band of adversaries.
It is noteworthy that this retention of the MPR is the first after 6 consecutive hikes. Many watchers had thought that a further hike was in the offing in order to further curtail money supply and ipso facto, inflation, but the Committee in its wisdom gave a nod to retention. The slight reduction in petroleum motor spirit prices being spearheaded by Dangote Oil as well as the recent reduction in food supplies are also factors that came into play.
The unanimity of their decision especially at a meeting where all members were present is commendable and instructive.
It is hoped that as these parameters are being held for this entire quarter, enforcement of food security measures and forex rates moderation, inflation will begin to decline and better statistics that resonate with citizens’ realities will emerge. Already with the rebasing of the economy inflation is said to be down from 34.80%to 24.48%, the expectation is that this downward trajectory of inflation figure will be ‘real’ and sustained.
The Committee notes that the introduction of Electronic Foreign Exchange Matching System and the Nigerian Foreign Exchange Code have helped to stabilize the exchange rate, facilitated by improved transparency and liquidity.
At a critical point in time like this, it is important that fiscal and monetary authorities ensure not to work at cross purposes. Rather, their policies and operations must be in sync with the central goal of stimulating growth without necessarily exacerbating inflationary pressures.
Clearly the Committee chose the path of circumspection and this position cannot be thumbed down considering the delicate and unpredictable nature of the variables and the possible grim impact of any false move on citizens.
Responding to the development, Dr. Samson Simon, a lecturer with Baze University based in Abuja who also doubles as the Chief Economist of ARKK Economics and Data Limited says, ” I think the CBN is right by holding all the parameters constant. Mind you we have just rebased CPI and then the numbers are a bit different. So since the methodology has been changed, I think the best thing for the monetary authorities is to be circumspect and that is what they just demonstrated by holding all the parameters constant; whether it is the MPR, the Liquidity Ratio, the Cash Reserve Ratio, even the Assymetric Corridor around the MPR. So it is the right thing to do to just study, watch and see.”
Dr. Aliyu Ilias, a Development Economist had the following to say:
“I think it is a good thing that they retained those parameters because if they didn’t, people would have complained more.
The thing is that they are also doing it waiting for the GDP rebasing so that they can easily know where to place things.
“The rebasing is making things look positive. Meanwhile, the real economy is the purchasing power of Nigerians so I think retaining the parameters is right because we don’t want to see them going beyond this level. It is killing small businesses, this hawkish approach always kills growth and with the intention to bring down inflation.
(On the whole), I think it is a good one but we hope that the economy gets better after the rebasing.”
Talking about the rebasing it must be stressed that no matter how sexy the economic theory may sound or look, if it does not translate to higher purchasing power and better quality of life in practical terms, it means little or nothing to the average citizen.