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MPC Again Leaves Policy Rates Unchanged

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Tuesday, July 25, 2017 3.02 PM / Cordros Capital

At the end of its 257th meeting (fourth this year), the Central Bank of Nigeria's (CBN) Monetary Policy Committee (MPC) voted to maintain status quo 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) headwinds confronting global growth amid tightening monetary stance in the U.S., (2) downward trend in global inflation, (3) volatility in global crude oil market, (4) slower contraction in the domestic economy (GDP contracted by 0.52% y/y in Q1-2017), (5) continued drop in domestic headline inflation rate in June (at 16.10% y/y) – noting the still-high food prices, which the MPC expects to moderate in Q3 -- and (6) relative improvement in the forex space, heralding stability of the average naira exchange rate across various segments of the market. 

Indeed, the risk facing the domestic economy remains in two folds (i.e. price and output), with leading indicators pointing to a fragile recovery of output growth over the remaining part of the year. Thus, monetary and fiscal policies must remain harmonized to sustain expected recovery. 

The MPC members were faced with the choice of either maintaining status quo or easing monetary policy. Amid strong arguments for both positions, the choice to support growth without jeopardizing recent gains around prices (including exchange rate) culminated into a decision (6 to 2 votes) of holding policy rates constant. 

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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