Nigeria Monetary Policy March 2019


Nigeria: Central Bank unexpectedly cuts policy rate in March

March 26, 2019

At its 25–26 March meeting, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) cut the monetary policy rate from a record-high of 14.00%, which had remained in place since July 2016, to 13.50% in a move that took market analysts by surprise. However, the committee left all other monetary policy parameters unchanged, with the asymmetric corridor remaining at plus 200 and minus 500 basis points around the monetary policy rate, the liquidity ratio at 30.00% and the cash reserve ratio at 22.50%. Notably, the MPC was not unanimous in its decision, with only 6 out of the 11 members voting in favor of lowering the policy rate.

The Bank’s decision signaled a new direction for monetary policy, which had previously been held tight to curb stubbornly-high inflation. In the accompanying statement, the CBN acknowledged that inflation has moderated steadily and that upside risks to the outlook persist; however, they specified that these are mostly due to external factors removed from “the ambit of monetary policy”. In addition, the Bank explained that “given the relative stability in the key macroeconomic variables, there is the need to signal a new direction that is pro-growth” to support the lackluster economy. Notably, a recent upsurge in capital inflows into Nigeria following the reduction of uncertainty with the end of the presidential election and an improvement in the oil sector have helped support the naira and allowed the Bank the space to ease rates, at least for now.

Looking forward, the Bank struck a more accommodative tone than previous statements, stating that “it is imperative that monetary policy should explore the next steps necessary for enhancing growth, reducing unemployment and diversifying the base of the economy.” This suggests that the Bank may enter an easing cycle to support growth, if macroeconomic data continues to play out as expected. That said, the size of the cut was rather modest and is unlikely to provide much of an economic boost, especially considering that the Bank relies heavily on unorthodox monetary policy measures. Moreover, the term of CBN Governor Godwin Emefiele is scheduled to end in June; it is currently uncertain whether he will be granted a second term and, if not, how his possible replacement would affect the course of monetary policy.

The next Central Bank meeting is scheduled for 20–21 May.

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