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Nigeria Monetary Policy May 2018

Nigeria: Central Bank leaves policy rate unchanged in May

At its 21–22 May monetary policy meeting, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) decided to leave the monetary policy rate as well as all other monetary policy parameters unchanged, meeting market expectations. As a result, the monetary policy rate remains at a record-high14.00% and 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%.

The Bank’s decision to hold the monetary policy rate unchanged at a record-high reflects stubbornly high price pressures in Nigeria’s economy. Although inflation has fallen notably since peaking at 18.7% in January 2017, it remains well above the Bank’s target of 6.0%–9.0%. In addition, in its accompanying statement, the Bank pointed out several upside risks to the inflation outlook, including the proposed new minimum wage and a huge fiscal injection due to the late passage of the 2018 budget and the timing of elections. These risks could jeopardize the outlook for inflation if they materialize, justifying the Bank’s cautious stance.

Looking forward, the Bank struck a broadly neutral tone in its communique, mentioning that more data is needed to evaluate the direction of monetary policy. However, inflation is forecast to retreat further over the coming months, and assuming the foreign exchange market continues to remain stable or exhibit positive tendencies, the Bank’s preferences are likely to swing more towards a rate cut going forward.

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