CBN Retains Lending Rate at 13.5 %, Says VAT Increase to Improve Fiscal Revenue

By Gift Olivia Samuel, The Sight News

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria(CBN), Friday, decided by a unanimous vote to retain the Monetary Policy Rate (MPR) at 13.5 percent and to hold all other policy parameters constant.

The Committee which held its fifth Monetary Policy Committee (MPC) meeting for 2019, also noted that the Government’s current drive to increase Value Added Tax (VAT) to 7.5%  from 5% will improve fiscal revenue to support expenditure and reduce the budget deficit as well as Government’s borrowing when implemented. 

The CBN Governor, Godwin Emefiele who spoke to Journalists at the end of the 269 MPC m September meeting, said that the MPC voted to: Retain the MPR at 13.5 percent; Retain the asymmetric corridor of +200/-500 basis points around the MPR; Retain the CRR at 22.5 percent; and Retain the Liquidity Ratio at 30 percent.  

Emefiele, noted that as regards the option to hold, the MPC opined that the option requires a clear understanding of the quantum and timing of liquidity injections into the economy, before deciding on possible adjustments to the stance of monetary policy. 

“The Committee was also of the opinion that retaining the current position of Policy, offers pathways to appraising the effects of the suit of heterodox monetary policy to encourage credit delivery to the real sector, especially in the light of the subsisting implementation of the Loan To-Deposit Ratio policy,” he remarked.  

He stated that the Committee felt that loosening would result in increased system liquidity and hence, heighten inflationary tendencies in the economy, while tightening in the midst of a fragile growth outlook would increase the cost of credit, and further contract investment and constrain output growth.

On revenue generation, he stated that the MPC called on the Government to, as a matter of urgency, adopt what it termed a ‘BIG BANG approach’, towards building fiscal buffers by purposefully freeing-up redundant public assets through an efficient, effective and transparent privatization process. 

“This would raise significant revenue for Government and resuscitate the redundant assets to generate employment and contribute effectively to national economic growth”, he added.

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