Lagos / Abuja – Members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) have voted at the end of the two-day meeting in Abuja to retain monetary policy rate (MPR) at 14 percent, alongside all other policy parameters.
Godwin Emefiele, governor, Central Bank of Nigeria (CBN), said at the end of meeting that the committee was keeping monetary policy rates because of the fear that loosening the rates may lead to a rise in consumer prices.
“The committee noted that loosening will strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing. This may, however, lead to a rise in consumer prices, generating exchange rate pressure on the currency in the process,” Emefiele said.
Emefiele said nine members of the committee unanimously agreed to maintain the current monetary policy stance.
He said apart from the MPR, which was retained at 14 percent, the committee also retained the cash reserves ratio at 22.5 percent, liquidity ratio at 30 percent, and the asymmetric window at +200 and -500 basis points around the MPR.
Most analysts had expected rates to be kept on hold with cuts seen later this year.
The committee noted with satisfaction the gradual return to macroeconomic stability as reflected in the third consecutive quarterly growth in real GDP in the fourth quarter of 2017.
It also noted the continued moderation in all measures of inflation as well as sustained stability in the naira exchange rate and urged the bank to sustain the stability to avoid a mission drift.
In particular, the committee welcomed the narrowing of the exchange rate premium between the BDC segment and the investors’ and exporters’ (I&E) window of the foreign exchange market.
Overall, the committee noted that the recovery of the economy was strengthening, in view of the return to growth of the services sector. As the fiscal sector continues to settle its outstanding liabilities, it reduces its domestic debt profile, thus increasing the liquidity of the banking system.
However, MPC observed increasing monetisation of oil proceeds as evident in the growing FAAC distribution, relative to the 2017 level of disbursements. The committee urged the government to initiate strong stabilisation programmes and to freeze the growth in its aggregate expenditure and FAAC distributions in order to create savings needed to stabilise the economy against future oil price related shocks.
Notwithstanding the general improvement in macroeconomic conditions, the committee noted the rather slow pace of moderation in food inflation. It also took note of the potential risk of a pass-through from rising global inflation to domestic prices.
The central bank cancelled its January meeting due to an inability to form a quorum after several departures reduced it to just five out of 12 members.
The decision to raise key interest rate to 14 percent was made in July 2016, and has been kept at the same level since then. At 14 percent, Nigeria’s MPR is currently at its highest in at least 12 years.
“The committee also believes that loosening could worsen the current account balance through increased importation.
“On the argument to hold, the committee believes that key variables have continued to evolve in line with the current stance of macroeconomic policies, and should be allowed more time to fully manifest.
“In consideration of the foregoing, the committee decided unanimously by a vote of all members present, to retain monetary policy rate (MPR) at 14 percent, alongside all other policy parameters,” Emefiele added.
Emefiele said the new members did not decide to go with the previously-held decisions of the CBN because they are new, but because they are “a strong set of people, who understand their responsibilities and have decided to hold positions for now”.
Analysts at FBNQuest and United Capital had declared that there would be no change in policy rate in the near term, citing current improvements in key economic variables in spite of instability in the global economy as reason for their assumptions.
They said the decision to tweak policy rates will depend on stability in the global and domestic economy, adding that though the prospect of economic recovery is strengthening in the local economy, conditions in the global market remain largely volatile.
Specifically, United Capital research analysts are of the view that events in the global market point to further tightening rather than easing policy rate in the interim.
“We do not foresee any swift policy shift in the monetary policy space in the short to medium term, given that conditions in the global and domestic market environment, which informed a hawkish stance in the first place, remain fragile and unstable,” they noted.
Ayodeji Ebo, Managing Director of Afrinvest Securities Limited, said the committee had done the right thing as the call for monetary policy easing may be too early in the year.
“In my view and that of Afrinvest as a company, I think members of the MPC have done the right thing to keep the rates unchanged.”
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