CBN kept benchmark interest rate unchanged at 14%

The Central Bank of Nigeria kept its benchmark interest rate on hold at 14 percent on September 25th 2018, as widely expected. The last time policymakers changed rates was in July 2016, when they lifted the monetary rate by 200 bps. The Committee noted inflationary pressures rebuilding, as the annual inflation rate increased for the first time since January last year to 11.23 percent in August from 11.14 percent in July, mainly due to higher cost of food.

Excerpts from the Statement by the Central Bank of Nigeria:

The Committee noted the uneven expansion in global output amidst growing trade tension, rising oil prices and debt levels as well as currency depreciation in most of the notable emerging markets and developing economies. These developments notwithstanding, there was evidence of resilient financial markets and output growth in the advanced economies led by the United States, which experienced sharp improvements in output growth. In the Euro area, United Kingdom and Japan, the pace of growth was moderate but steady, while in the Emerging Markets and Developing Economies (EMDEs), growth was sluggish and relatively uneven.

The MPC observed that despite the under-performance of key monetary aggregates, headline inflation (year-on-year) inched up to 11.23 per cent in August 2018, from 11.14 per cent in July 2018. The rise in headline inflation was from food, while core inflation declined, indicating that supply side factors were driving the price increase. The near-term upside risks to inflation remained the dissipation of the base effect, expected 2019 election-related spending, continued herdsmen attack on farmers and the current episodes of flooding which has destroyed crops and would affect food supply and prices.

Available data and forecast of key macroeconomic indicators show a positive outlook for the economy in the third quarter of 2018. The Committee expects that sustained implementation of the 2018 budget, improvements in the security situation and sustained stability in the foreign exchange market will stabilize prices and strengthen economic growth. The Committee, however, identified the downside risks to the outlook to include: the impact of increased monetary policy normalization in the advanced economies and the strengthening US dollar.

In light of the above, the MPC decided by a vote of seven (7) members to retain the MPR at 14 per cent. However, three (3) out of these seven (7) members voted to raise the Cash Reserve Requirement (CRR) by 150 basis points, an indication that left to them, we should have tightened. The other three (3) members voted to tighten by raising the MPR by 25 basis points. In summary, the MPC voted to: I. Retain the MPR at 14 per cent; II. Retain the asymmetric corridor of +200/-500 basis points around the MPR; III. Retain the CRR at 22.5 per cent; and IV. Retain the Liquidity Ratio at 30 percent.

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