The Monetary Policy Committee (MPC) of Central Bank of Nigeria (CBN) on Thursday were faced with the choice of reducing or leaving policy parameters unchanged – unanimously elected to reduce the interest rate by 100basis points to 12.5 per cent.
Notably, seven members voted to cut rate by 100basis points, two members voted for a 150 basis points rate cut, while one member elected for a 200basis points rate cut.
Monetary Policy Rate (MPR) at 12.5per cent;
Asymmetric corridor around the MPR at +200/-500 basis points;
Cash Reserves Ratio (CRR) at 27.5 per cent; and
Liquidity Ratio (LR) at 30.0 per cent.
The Committee considered developments in the global and domestic economy since its last meeting including (1) the negative impact of COVID-19 on global growth and (2) Dovish global central banks’ responses to the COVID-19
On the domestic front, the Committee noted (1) sustained inflationary pressure (April: +eight basis points to 12.34 per cent y/y), (2) weaker but still positive output growth in Q1-20, and (3) and sustained decline in manufacturing PMI.
Our key takeaway is that the committee acknowledged that growth will slide into the negative territory in Q2-20. However, in a bid to avoid an economic recession over 2020, the MPC elected to support an already dovish policy landscape with a 100 basis points rate cut.