July 24, 2018/Cordros Update
At the end of its 262nd meeting (third this year), the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) voted to maintain status quo for the tenth consecutive session by retaining the:
- Monetary Policy Rate (MPR) at 14.0%;
- Asymmetric corridor around the MPR at +200/-500bps;
- Cash Reserves Ratio (CRR) at 22.5%; and
- Liquidity Ratio (LR) at 30.0%.
The Committee considered developments in the global and domestic economy since its last meeting, including; (1) monetary policy normalization in developed markets (particularly in the US) which has triggered capital outflows in the domestic financial market, (2) rise in global trade protectionism, which poses downside risks to global growth, and, in extension, poses a potential headwind to oil demand, (3) increased inflationary pressures — amidst the implementation of the expansionary NGN9.1 trillion 2018 budget, the expected rise in pre-election spending, as well as lingering conflicts between the farmers and herdsmen in key food-producing states, (4) stability in the forex market, as the external reserves remain healthy (supported by healthy oil prices and production), and (5) continued expansion in the GDP, which grew by 1.95% in the first quarter of the year,
The MPC members were faced with the choices of maintaining status quo, tightening, or easing monetary policy. Amid strong arguments for the three positions, the choice to support growth without jeopardizing recent gains around prices (particularly exchange rate) culminated into a decision (7 votes to 3) to hold key policy rates constant, with 2 members voting to raise rates by 50 bps, and 1 voting for a 25 bps increase.
The Committee’s decision came in line with consensus, as shown by a Bloomberg-compiled median estimate of 14.0% for the MPR.