…Recalibrates Monetary Policy With Market Realities
The Central Bank of Nigeria (CBN) has reset the Monetary Policy Rate (MPR) at 23 per cent while recalibrating its standing facilities corridor as part of measures to strengthen monetary policy transmission.
The 23 per cent is a massive reduction over the 26.5 per cent rate which the MPR was pegged at its last meeting in July.
The decision was taken at the latest meeting of the Monetary Policy Committee (MPC), with 11 members in attendance.
Announcing the decisions at a media briefing on Tuesday in Abuja, CBN Governor, Olayemi Cardoso, said the committee resolved to reset the MPR at 23 per cent and recalibrate the standing facilities corridor to +50 and -300 basis points around the MPR.
The MPC also retained the Cash Reserve Requirement (CRR) for deposit money banks at 45 per cent, merchant banks at 16 per cent and non-TSA public sector deposits at 75 per cent.
Cardoso said the recalibration was aimed at strengthening the effectiveness of monetary policy and reinforcing the primacy of the MPR in guiding market rates.
He stressed that the adjustment did not represent a change in the current monetary policy stance.
“The MPC emphasized that the recalibration of the corridor does not constitute a change in the current monetary policy stance, but rather an operational reset to enhance the effectiveness of monetary policy and support the transition to an inflation targeting framework,” Cardoso said.
The governor explained that the decision followed concerns over the divergence between the MPR and prevailing market rates, which had weakened the transmission of monetary policy to the broader economy.
“Members noted that the observed divergence between the MPR and the prevailing market rates had weakened the effectiveness of monetary policy transmission,” he said.
According to Cardoso, the CBN’s ongoing efforts to improve its monetary policy implementation framework, including the adoption of the Nigerian Overnight Financing Rate (NIFOR) as a transaction-based operational benchmark, had enhanced transparency in money market operations.
The MPC, he said, therefore considered the reset of the MPR and recalibration of the policy corridor appropriate to better align the monetary policy framework with prevailing market realities.
“This would strengthen policy transmission and restore the MPR principle of monetary policy,” Cardoso said.
The governor said the committee was of the view that the current economic environment remained supportive of the operational adjustment without undermining the ongoing disinflation process.
He added that the committee observed increasing resilience in the Nigerian economy, citing moderating inflation, stronger external reserve buffers, improved external sector fundamentals and increased investor confidence.
Cardoso said the MPC had also acknowledged considerable improvements in the balance of the economy while maintaining that monetary policy would continue to focus on supporting price stability and improving the effectiveness of its transmission mechanism.
The latest decision means the benchmark interest rate remains at 23 per cent, while the adjustment to the standing facilities corridor is intended to improve the alignment between the CBN’s policy rate and conditions in the money market.
The committee reiterated that the operational realignment should not be interpreted as a shift in the underlying direction of monetary policy.
Cardoso said the adjustments were part of the CBN’s broader effort to repair and strengthen the monetary policy implementation framework as Nigeria transitions towards an inflation-targeting regime.
