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Nigeria Monetary Policy January 2022

Nigeria: Central Bank stays put in January

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) held fire at its 24–25 January meeting, with all policy parameters remaining unchanged. Therefore, the monetary policy rate (MPR) stayed at 11.50%, while the asymmetric corridor remained at plus 100 and minus 700 basis points around the MPR. Moreover, the cash reserve ratio was left unchanged at 27.50% and the liquidity ratio at 30.00%.

In deliberating its decision, the Bank noted that inflation has been on a downward trend in recent months, despite the holiday-season-induced uptick in December. It was “thus of the view that prices will return to the downward trajectory given the Bank’s ongoing interventions in the agriculture sector”. Turning to the economy, the Committee observed the ongoing recovery, but highlighted that it has been held back by the continued impact of the pandemic. Based on recent high-frequency indicators, the Bank expects economic growth to firm this year. It also took into consideration the hawkish turn by central banks in advanced economies. However, it noted that Nigeria suffers not only from high inflation, but also frail activity. Thus, the Bank deemed that its “current stance of price and monetary stability conducive for growth remains desirable”.

In its accompanying press release, the CBN seemingly turned more dovish as it stated that it “dropped a tightening option at this meeting in view of the fragile state of the current GDP growth rate and potential external and domestic headwinds confronting the economy”. The Committee noted that tightening could hamper the steady improvement in credit performance and reverse the declining trend in NPLs. However, as inflation is forecast to remain above the Bank’s 6.0%–9.0% target band, FocusEconomics Consensus Forecast panelists largely expect the Bank to embark on a tightening cycle this year to cool inflation more forcefully.

Analysts at the EIU, however, expect the Bank to keep rates on hold, adding:

“The CBN will fail to keep inflation below a (loose) target ceiling of 9.0%, and its policy decisions are likely to remain erratic. High inflation over 2021 did not cause the CBN to increase its policy rate from 11.50%, and we expect no change in the rate over 2022–24. Inflation will generally be lower in these years, pointing away from newfound hawkishness, and lowering interest rates would risk unleashing another bout of severe inflationary pressure and compromise exchange-rate stability.”

The next meeting is scheduled for 21–22 March.

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