The Monetary Policy Committee (MPC) held its 271st meeting on the 23rd and 24th of January, 2020. The Committee noted the current environment of sluggish global economic recovery and financial market vulnerabilities, and tepid domestic growth.
Highlights of the Committee’s decision:
The Committee by a decision of 9 members, voted to alter the Cash Reserve Requirement (CRR) by 500 basis points from 22.5 to 27.5% while leaving all other policy parameters constant. Two members voted to leave all parameters constant. In summary, the MPC voted to:
- Change the CRR from 22.5 to 27.5%;
- Retain the MPR at 13.5%;
- Retain the asymmetric corridor of +200/-500 basis points around the MPR;
- Retain the Liquidity Ratio at 30%.
Their decision was guided by the following developments:
Global Economy: Outlook and headwinds
- Global output is projected to grow by 3.3% in 2020 from 2.9% in 2019.
- Broad slowdown in the advanced economies,
- Resurgence of financial stress in the Emerging Markets and Developing Economies (EMDEs),
- Rising geo-political tensions in the Middle-East and;
- Extreme weather conditions in some regions.
Domestic Economy: Outlook and headwinds
The optimism in growth prospects in Q1 2020, and the rest of the year, is anchored on the enhanced flow of credit to the private sector, to improve manufacturing activities, and financial and exchange rate stability.
Identified headwinds to growth include:
- Uncertainty in the oil market
- High unemployment
- Rising public debt and
- Security challenges across the country.
Credit Update
- Aggregate Credit (Net) grew to 27.33% in December 2019, from 23.12% in the previous month.
- This was largely attributed to an increase in Credit to Government, which grew to 92.95% in December 2019, from 72.36% in the previous month.
- Credit to the Private Sector also grew to 13.61% in December 2019, from 12.82% in the previous month.
The Committee observed with delight that, over the last six months, aggregate credit grew by N2.0 trillion and urged the Management of the Bank to sustain the current momentum of improved flow of credit to the Private Sector, while exploring other options with the fiscal authorities to strengthen the legal framework for the enforcement of credit recovery.
The Committee noted the improvement in the financial soundness indicators, growth in assets of the banking system and the gradual switch in the composition of DMB assets from investments in government securities to growth in credit portfolio.
It also noted that in some cases, DMBs were not encouraging term deposits in their portfolios and therefore, emphasized the Bank’s commitment towards the implementation of the Loan-to-Deposit ratio (LDR) policy.
It is noteworthy that Gross credit in the industry grew by N2 Trillion between May 2019 and December 2019; channeled primarily to the employment-stimulating sectors such as agriculture and manufacturing, in addition to increased lending to the retail and SME segments, which is expected to help boost domestic output growth in the short to medium term.
The MPC believes that the aggressive pursuit of the current loan-to-deposit ratio policy thrust would continue to help to catalyze credit growth and positively impact growth and prices.
Despite the increase in CRR, we believe there is still enough liquidity in the system to sustain the current flow of credit. If you need a loan and/or credit advisory, send your request to our credit team at bjoseph@capitalbancorpgroup.com and aogunbanwo@capitalbancorpgroup.com.
