As Expected, MPC Leaves Policy Rates Unchanged


Tuesday, November 21, 2017 3:04PM/ Cordros Capital 

At the end of its 259th meeting (sixth this year), the Central Bank of Nigeria's (CBN) Monetary Policy Committee (MPC) voted to maintain status quo for the eighth consecutive session by retaining the:
1.         Monetary Policy Rate (MPR) at 14.0%;

2.         Asymmetric corridor around the MPR at +200/-500bps;

3.         Cash Reserves Ratio (CRR) at 22.5%; and

4.         Liquidity Ratio (LR) at 30.0%.

The Committee considered developments in the global and domestic economy since its last meeting including (1) strengthening expectation of improvement in global output growth, (2) tepid global inflation momentum, (3) continued accommodative monetary policy in developed economies in support of recovery and growth, (4) the second consecutive quarter of growth in the GDP by 1.40% in the third quarter of the year, (5) continued drop (albeit at a slower pace) in domestic headline inflation rate in September (at 15.91% y/y) – noting the still-high food prices – with the MPC highlighting that inflation expectation remains anchored on the strength of tight monetary policy -- and (6) relative improvement in the forex space, amid continued healthy accretion to the nation's foreign reserves, and heralding stability of the average naira exchange rate across various segments of the market.

Again, the risk facing the domestic economy remains in two folds (i.e. price and output), with complementary fiscal and monetary policy remaining crucial to continued growth.

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 (8 votes to 1) of holding policy rates constant, while allowing for policy flexibility as developments unfold in the macroeconomic space.

The Committee's decision came in line with consensus, as shown by a Bloomberg-compiled median estimate of 14.0% for the MPR.

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