Nigeria: Central Bank of Nigeria cuts rates in order to shore up the economy
November 24, 2015
At its 23–24 November monetary policy meeting, the members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unexpectedly voted 8-2 to cut the monetary policy rate by 200 basis points to 11.00%. Moreover, the committee also decided to establish an asymmetric corridor of plus 200/minus 700 basis points around the key rate. The decision was in line with market analysts’ expectations. Finally, a majority of 7 members of the committee voted to reduce the Cash Reserve Requirement (CRR) from 25.0% to 20.0%.
The Central Bank defended its decision arguing weakening fundamentals of Nigeria’s economy, particularly subdued GDP growth and high unemployment. The Bank also cited rising uncertainty of the global economic environment as one of the main factors behind its decision. Growth in emerging-market economies continues to sag as a result of the ongoing economic slowdown in China. On the upside, the board stated that the economy will likely recover in the coming months due to the increased power supply, new economic measures by the government and progress in the country’s fight against Boko Haram.
Regarding price developments, the Bank acknowledged that inflationary pressures are partially abating, but stressed the need of complementary supply-side policies as part of an overall strategy to anchor inflation expectations. The next monetary policy meeting is scheduled for January.
The Central Bank’s decision was received with mixed feelings among analysts. Many expected the Bank to hike the monetary policy rate as the country is facing mounting pressure on the naira, high inflation and rising external and financial imbalances. With this move, analysts believe that the pressure on the economy will increase in the months to come.