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Nigeria Monetary Policy May 2019

Nigeria: Central Bank stays put in May

At its 20–21 May 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, broadly in line with market expectations. As a result, the policy rate remains at 13.50%, which had been unexpectedly cut from a record-high 14.00% in the previous March meeting, 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 at 30.00% and the cash reserve ratio at 22.50%. Notably, 9 out of the 11 MPC members voted in favor of keeping monetary policy parameters unchanged; the remaining two voted for a 25 basis points policy rate cut.

The Bank’s decision was primarily motivated by the persistence of elevated inflationary pressures: Inflation ticked up to 11.4% in April (March: 11.3%) and has hovered within the 11.1%–11.4% range for nearly a year now, remaining well above the Bank’s target of 6.0%–9.0%. In addition, growth has been soft as of late—it slowed to 2.0% on an annual basis in Q1 (Q4 2018: +2.4% year-on-year) due to yet another contraction of the vital oil sector—while output has been below potential. The MPC thus deemed that a rate hike would adversely impact the already-fragile state of the economy while a rate cut would exacerbate price pressures, and thus decided to stay put.

Looking forward, the Bank struck a broadly neutral tone in its communiqué, suggesting it would wait and see how growth dynamics evolve before making a decision on whether to modify its policy stance. Moreover, the reappointment of CBN Governor Godwin Emefiele to a second five-year term, whose current mandate was to end next month, has significantly reduced uncertainty over the course of monetary and FX policy ahead.

The next Central Bank meeting is scheduled for 22–23 July.

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