Nigeria: Central Bank keeps policy rate at 14.00% to ease inflationary pressures amid recession
September 20, 2016
At its 19–20 September monetary policy meeting, the members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) decided to keep the monetary policy rate at a record high of 14.00%. In holding the rate, the MPC aims to alleviate elevated inflationary pressures—which have been fueled by the collapsing naira—to attract foreign capital and to support the currency. The decision reflects that the MPC has resisted political pressure to ease monetary policy in order to prop up the ailing economy after Nigeria fell into recession in Q2. CBN governor Godwin Emefiele made clear that, “loosening monetary policy now is not advisable as real interest rates are negative, pressure exists on the foreign exchange market while inflation is trending upwards.” The Committee’s decision was unanimous, with all ten members voting for it. The Committee also left the asymmetric corridor of plus 200 and minus 500 basis points around the key rate unchanged. Finally, CBN members decided to keep the Cash Reserve Requirement (CRR) at 22.50% and the Liquidity Ratio (LR) at 30.00%.
Regarding the Nigerian economy, the CBN pointed out that GDP recorded a deep contraction in Q2, mainly dragged down by lower oil production due to militant attacks on oil infrastructure, but also hampered by currency shortage, the naira’s depreciation and subdued demand. Concerning inflation, the Bank stressed that it continued on an upward trend, rising to a multi-year high of 17.6% in August. In the Bank’s assessment, inflation will begin to recede in Q4, mainly owing to restrictive monetary policy, June’s liberalization of the exchange rate regime and the impact of the end of harvest season on prices. The next monetary policy meeting is scheduled for 21–22 November.