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Nigeria Monetary Policy September 2018

Nigeria: Central Bank holds policy rate in September

At its 24–25 September meeting, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) decided to leave the monetary policy rate as well as all other monetary policy parameters unchanged, meeting market expectations. As a result, the policy rate remains at a record-high 14.00%, with the asymmetric corridor at plus 200 and minus 500 basis points around the monetary policy rate. In addition, the Committee left the liquidity ratio unchanged at 30.00% and the cash reserve ratio stable at 22.50%. Notably, three MPC members voted to raise the policy rate and three voted to raise the cash reserve requirement due to high inflationary pressures.

The Bank’s decision to keep monetary policy tight reflects stubbornly high price pressures in Nigeria’s economy. Inflation, although having receded somewhat, has lingered well above the Bank’s target of 6.0%–9.0% all year, and risks to the outlook have intensified in recent months. Specifically, pre-election spending, flooding and the farmer-herdsmen conflict in key food-producing states are threatening to keep price pressures high, while capital outflows have dented the Central Bank’s international reserves. That said, better harvests in the coming months could help relieve some pressure on prices. Meanwhile, the economic backdrop is somber with fragile growth dynamics seen in the first half of the year. In the accompanying statement, the Bank called on the government to fast track the implementation of the 2018 budget to give a needed boost to the economy.

Looking forward, the Bank struck a cautious tone in its communiqué, citing growth headwinds and high inflationary pressures. However, the Bank ultimately decided against hiking the policy rate to avoid derailing the economic recovery. The Bank also added that it was taking a wait-and-see approach until there is a clear view of the timing of liquidity injections from the government to support growth. The next Central Bank meeting is scheduled for 19 and 20 November.

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