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Nigeria Monetary Policy March 2021

Nigeria: Central Bank stays put in March

The Monetary Policy Committee of the Central Bank of Nigeria stood pat at its 22–23 March meeting, leaving the monetary policy rate unchanged at 11.50%. Moreover, the Bank kept the asymmetric corridor at plus 100 and minus 700 basis points around the monetary policy rate, the cash reserve ratio at 27.50% and the liquidity ratio at 30.00%.

The Bank’s decision to hold reflected a balancing act between the need to tackle elevated inflation and continue supporting the economic recovery. While the Committee noted that a rate hike could be warranted to cool price pressures, ultimately it decided that a tightening of financial conditions could “hamper investments required to create employment and continue to boost recovery”. That said, the decision was not unanimous as three of the nine members opted to raise the monetary policy rate by 50–75 basis points.

Although the Bank struck a relatively neutral tone in its statement, the somewhat divided vote and its hint that tighter financial conditions may be required to bring down inflation opened the door to a possible rate hike ahead. That said, the Bank could continue to prioritize rekindling economic activity over taming price pressures and keep the rate unchanged.

Jacques Nel, head of Africa macro at Oxford Economics, added:

“Price inflation remains at uncomfortable levels and we think the CBN will probably increase interest rates this year. Monetary tightening could also increase forex inflows, but this will have to be accompanied by a more liberal policy towards the naira exchange rate.”

Analysts at the EIU, however, are less convinced of a rate hike this year, commenting:

“Inflation is structurally high but the Central Bank will prioritise credit growth in its monetary stance. A low interest rate environment points to further adjustments to the naira’s value, with the current account remaining in deficit over 2021. High inflation will slow an economic recovery in 2021 and force monetary tightening from 2022, limiting the medium-term growth profile as well.”

The next monetary policy meeting is scheduled for 24–25 May.

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