Nigeria Economic Update (Issue 39)

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted to reduce the Monetary Policy Rate by 100 basis points, from 12.5 percent to 11.5 percent.¹ Other decisions taken by the MPC includes the retention of Cash Reserve Ratio (CRR) at 27.5 percent and retaining the liquidity ratio at 30 percent. These decisions were made in support of driving price stability and output growth. The MPC aims to use these policies to help reduce cost of capital in order for businesses to be able to afford loans. While the reduction in the MPR is expected to reflect in the interest rate of commercial banks, the banking sector may not be well-positioned to provide affordable loans. Considering that loans and advances to the oil sector accounts for about 30 percent of the risk assets in the banking industry, the disruption in the oil sector is likely to affect the ability of these companies to service their loans. Furthermore, banks are already being encouraged to offer debt moratorium by restructuring existing loans combined with the already high cash reserve ratio, making it difficult for them to make loans available. As such, revisions to CRR should be considered at the next MPC meeting.