LAGOS, July 24 – Nigeria’s central bank kept its main interest rate on hold at 14 percent on Tuesday to counter inflationary risk and introduced an initiative aimed at increasing liquidity to businesses, its governor said.
Godwin Emefiele said the decision to hold the benchmark interest rate at a record high level of 14 percent, which it has maintained since July 2016, was made at a meeting of 10 members of the monetary policy committee.
The CBN’s monthly monetary policy committee which made the decision shortly said it is not reducing the rate due to various macroeconomic indices which showed that Nigeria’s economic recovery is still fragile.
“The committee decided by a vote of seven members to retain the monetary policy rate at 14 percent. Two members however voted to increase the MPR (monetary policy rate) by 50 basis points, one member voted to cut it by 25 basis points,” he said.
Emefiele said the bank would encourage large companies to issue commercial paper at lower yields and would consider releasing funds to banks that lend to businesses at single digit rates.
“In order to achieve the objective of lowering interest rates… we would encourage large corporates to issue commercial paper notes in the market,” he said.
The central bank, worried about the liquidity injection from the government’s recently approved 2018 budget, said it could invest in commercial paper issued by companies to create jobs.
The central bank governor said the monetary policy committee expressed concern that credit to the real economy was falling and there was a need to incentivise deposit money banks to increase credit.
Meanwhile Nigeria’s inflation rate eased for the 17th consecutive month by 37 basis points to 11.23 percent (year-on-year) in June 2018 from the 11.61 percent recorded in May 2018, according to Nigeria statistical agency, the National Bureau of Statistics (NBS).
“The consumer Price Index (CPI), which measures inflation, increased by 11.23 percent (year-on-year) in June 2018. This is 0.37 percent points less than the rate recorded in May 2018 (11.61%) and represents the seventeenth consecutive disinflation since January 2017,” the NBS stated in its CPI and Inflation Report for the month under review.
The incoming general elections also heightened fears that political spending would increase consumer spending which could spike inflation.