Nigeria: Central Bank leaves policy rate unchanged at long overdue meeting
April 4, 2018
At its 3–4 April monetary policy meeting, the reconstituted 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 monetary policy rate remains at a record-high14.00% and 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%. April’s meeting marked the first MPC decision in five months. Previous meetings had been cancelled due to delays in appointing new members to the Committee following the end of several member’s tenures last year.
The Bank’s decision to hold the monetary policy rate unchanged at a record-high reflects stubbornly high inflation in Nigeria’s economy. Although inflation has eased somewhat since peaking at 18.7% in January 2017, pressure from food prices along with rising energy prices have kept price pressures elevated and inflation remains well above the Bank’s target of 6.0%–9.0%. In its accompanying statement, the Bank commented that rates cut could erase the gains made in bringing inflation down in recent months as well as put the naira under pressure. The latest data for February revealed inflation at 14.3%.
Looking forward, the Bank struck a broadly neutral tone in its communique, mentioning that the positive trend seen in key macroeconomic indicators as a result of the tight stance should be allowed more time to fully manifest. However, inflation is forecast to retreat further over the coming months, and assuming the foreign exchange market continues to remain stable or exhibit positive tendencies, the Bank’s preferences are likely to swing more towards a rate cut going forward. The next Central Bank meeting is scheduled for the 21 and 22 May.
Nigeria Interest Rate Forecast
All of FocusEconomics Consensus Forecast panelists expect the Bank to cut the monetary policy rate before the end of the year, with Consensus for the rate to end 2018 at 12.15%. In 2019, the panel sees the monetary policy rate ending the year at 11.72%.