Nigeria: Central Bank leaves policy rate unchanged
March 21, 2017
At its 20–21 March monetary policy meeting, nine of the 10 members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) decided to leave the monetary policy rate and all other monetary policy mechanisms unchanged, meeting market expectations. The monetary policy rate stands at 14.00% and the liquidity ratio at 30.00%. The Committee also left the asymmetric corridor of plus 200 and minus 500 basis points around the key rate unchanged and the Cash Reserve Requirements at 22.50%.
The latest policy decision clearly shows the predicament the CBN faces. Lowering interest rates to support economic activity at home would risk higher inflation and stunt growth prospects by impacting private consumption, earnings and the exchange rate. February’s month-on-month increase in consumer prices was therefore one of the main reasons that deterred the Central Bank from lowering rates. And yet raising rates further to combat inflation would “portray the Bank as being insensitive to growth” and undermine the banking sector’s financial stability.
The overall tone of the accompanying statement suggests that the MPC will refrain from taking any action in the foreseeable future. The Bank has discarded boosting economic activity through monetary policy due to the adverse impact it could have on aggregate demand, and instead it considers fiscal policy the most useful instrument to solve the country’s economic woes. The Bank applauded the Economic Recovery and Growth Plan released by the government in March, which sets out a credible blueprint to jumpstart growth. A speedy implementation of the program coupled with achieving stability in the Niger Delta region will be key to restoring growth in the short- and medium-term.
The next Central Bank meeting is to be held on 22 and 23 May.