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Nigeria Monetary Policy July 2020

Nigeria: Central Bank stands pat in July

At its 20 July meeting, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) decided to keep the monetary policy rate unchanged at 12.50%. The decision was in line with market expectations and comes on the heels of a hefty and unexpected 100 basis-point cut at its previous meeting in May. Eight committee members backed the decision, while the remaining two called to lower the rate. In addition, all other monetary policy parameters were left unchanged. Thus, the asymmetric corridor remained 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 27.50%.

The decision reflected the MPC’s position that it is a “relatively cautious option to hold” considering the sizeable cut delivered at its previous meeting, which would require time to fully work through the economy. It also deemed prudent to take a wait-and-see approach in order to evaluate the effects of the vast array of liquidity facilities it has deployed over the past few months to cushion Covid-19’s blow. Moreover, the Bank expressed concern over persistently high inflation, which ticked up for the tenth month in a row in June to 12.6% (May: 12.4%)—the highest level since March 2018.

Looking ahead, the communiqué was largely devoid of forward guidance, though the CBN remained relatively optimistic on the economic outlook, assessing that the contraction in activity this year will be small and that the economy will recover strongly next year. In addition, elevated inflation and pressures on the currency, which has prompted policymakers to devalue the official exchange rate by over 20% so far since March, may prevent additional accommodation through the policy rate.

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