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Nigeria Monetary Policy July 2019

Nigeria: Central Bank holds policy rate stable in July

At its 22–23 July meeting, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unanimously decided to leave the monetary policy rate as well as all other monetary policy parameters unchanged, in line with market expectations. As a result, the policy rate remains at 13.50%, after having been unexpectedly cut from a record-high 14.00% in the March meeting, 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 at 30.00% and the cash reserve ratio at 22.50%.

The Bank’s decision was mainly motivated by the persistence of elevated price pressures. Although inflation eased to 11.2% in June (May: 11.4%), it has remained well above the Bank’s target range of 6.0%–9.0% for over three years now. Moreover, structural factors such as high costs for electricity, transport and production inputs as well as security challenges that pose risks to food supply have kept price pressures high. On the activity front, recent PMI readings have fared well but still point to only modest economic growth so far. Overall, the MPC deemed that tightening policy could hinder banks’ capacity to extend credit, which remains a key objective for the Bank, while a rate cut could increase liquidity notably, particularly through consumer loans, that without a corresponding adjustment in output, could stoke price pressures. Thus, its decision to remain on hold.

Looking ahead, the Bank expects inflation to continue trending downwards, especially as the start of the harvest season dampens food inflation. Furthermore, it highlighted that the recent measure of raising banks’ loan-to-deposit ratios would increase credit delivery to the private sector, helping boost investment and growth. It would wait and see, however, how recent actions to stimulate lending impact the economy before deciding on whether to modify its policy stance.

The next Central Bank meeting is scheduled for 23–24 September.

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