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Nigeria Monetary Policy November 2018

Nigeria: Central Bank holds policy rate in November

At its 21–22 November meeting, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) left the monetary policy rate as well as all other monetary policy parameters unchanged, meeting market expectations. As a result, the policy rate remains at a record-high of 14.00%, with the asymmetric corridor at plus 200 and minus 500 basis points around the monetary policy rate. In addition, the Committee left the liquidity ratio unchanged at 30.00% and the cash reserve ratio stable at 22.50%. Notably, all eleven MPC members voted in favor of keeping monetary policy parameters unchanged.

The Bank’s decision to keep monetary policy tight reflects stubbornly high price pressures in Nigeria’s economy. Inflation, although having receded somewhat, has lingered well above the Bank’s target of 6.0%–9.0% all year, and risks to the outlook persist. Specifically, pre-election spending, higher energy costs, flooding and the farmer-herdsmen conflict in key food-producing states are threatening to keep price pressures high, while capital outflows have dented the Central Bank’s international reserves. In addition, the MPC noted that October’s downtick in inflation was largely due to seasonal factors in the agriculture sector. Meanwhile, the economic backdrop is somber with fragile growth dynamics seen in the first half of the year.

Looking forward, the Bank struck a broadly neutral tone in its communiqué, giving little forward guidance. Overall, while inflation is expected to increase in the run-up to Christmas and owing to campaign-related spending for the 2019 general election, price pressures should ease somewhat towards the end of next year and in 2020. The next Central Bank meeting is scheduled for 22–23 January.

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