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Nigeria Monetary Policy November 2019

Nigeria: Central Bank stays put in November

At its 25–26 November meeting, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unanimously decided to hold its monetary policy rate unchanged, as well as all other monetary policy parameters for the fourth consecutive meeting, as had been broadly expected by analysts. As a result, the policy rate remained at 13.50% and 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 mainly driven by persistent inflationary pressures. Inflation leaped to a 17-month high of 11.6% in October (September: 11.2%) due to a spike in food prices following the government’s decision to close land borders last month in an attempt to curb food smuggling. The MPC, however, stressed that the border closure’s impact on food prices was “reactionary and temporary” and that the medium-to-long-term benefits of the decision far outweighed the short-term costs. Regarding economic activity, GDP growth accelerated slightly to a modest 2.3% in the third quarter (Q2: +2.1% year-on-year), largely driven by strengthening momentum in the non-oil segment of the economy. Taken together, the MPC deemed that tightening policy would constrain the still-nascent recovery, while loosening would exacerbate price pressures further. Thus, in view of keeping price stability, the Bank decided to stay put.

Looking ahead, the Bank struck a neutral tone in its communiqué. Although it judged that the recent implementation of unconventional measures, such as raising banks’ loan-to-deposit ratios, have had a positive effect on credit creation and private sector activity so far, it indicated it would take a wait-and-see approach to assess the full effects of these policies before adjusting its policy stance.

The next central bank meeting is scheduled for January 2020.

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