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Nigeria Monetary Policy September 2019

Nigeria: Central Bank leaves policy rate unchanged in September

At its 19–20 September meeting, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unanimously decided to hold its monetary policy rate, as well as all other monetary policy parameters for the third consecutive meeting, as had been broadly expected by analysts. As a result, the policy rate is still at 13.50%, after the Bank surprised markets in March with the first cut since 2015, with the asymmetric corridor at plus 200 and minus 500 basis points around the monetary policy rate. Moreover, the committee left the liquidity ratio at 30.00% and the cash reserve ratio at 22.50%.

The decision was largely driven by continued inflationary pressures. Although inflation moderated to 11.0% in August (June: 11.1%), it still remains well above the Bank’s target range of 6.0%–9.0%. Moreover, upward price pressures remain due to rising insecurity in the food producing areas of the country and late budget cycles. With regards to economic activity, the outlook for growth is mediocre as high unemployment, increasing debt levels and security challenges dampen prospects. In this context, the MPC estimated that tightening monetary policy would increase the cost of credit and further contract investment. Meanwhile, easing could increase liquidity as the money supply would rise, which could stoke price pressures as this would come on the back of consumer credit growth but without a corresponding adjustment in output. Thus, against this backdrop, the Bank decided to keep the monetary policy rate unchanged.

Looking ahead, the Bank struck a broadly neutral tone in its communiqué. It pointed out that the recent measure of raising banks’ loan-to-deposit ratios should continue to encourage credit delivery to the real sector, bolstering investment and growth. However, it suggested it would wait and see how these actions affect economic dynamics before adjusting its policy stance.

The next Central Bank meeting is scheduled for 25–26 November. Most of our panelists see the Bank gradually loosening rates ahead.

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