Nigeria: Central Bank bucks global easing trend and holds rates in March
March 24, 2020
At its meeting on 23–24 March, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unanimously decided to retain its monetary policy rate unchanged, as well as all other monetary policy parameters—bucking the global trend of monetary easing amid the coronavirus fallout. As a result, the policy rate remained at 13.50% and the asymmetric corridor at plus 200 and minus 500 basis points around the monetary policy rate. Moreover, the committee left the liquidity ratio at 30.00% and the cash reserve ratio at 27.50%.
The MPC resolved that it would wait and see how the recent actions taken by the CBN to cushion the economic impact of the pandemic evolve before making a decision on whether to deploy further policy support. The measures taken amounted to a total of about NGN 3.5 trillion (around USD 9.7 billion), and comprise of credit support to households, SMEs and key sectors such as manufacturing and health as well as more flexible terms on loans provided by Bank. The economic package also came on the heels of the collapse in global oil prices, which exerted tremendous pressure on the currency and ultimately forced the CNB to devalue it. Against this backdrop, the CBN deemed that tightening would increase the cost of credit while reducing aggregate demand, and in turn dampening growth. On the other hand, it assessed that loosening policy could stoke inflationary pressures, add strain on FX reserves and the currency; thus, explaining its decision to stay put.
Looking ahead, the CBN struck a cautious tone in its statement, while appearing it remains wary of the external sector position and rising inflationary pressures. In addition, with the crash in oil prices, in which the commodity accounts for about 90% of FX earnings, coupled with the pandemic’s impact on the health system and general economic activity, the outlook has severely deteriorated.
The Central Bank’s next meeting is scheduled for 25 May.
Author: Javier Colato, Economist