At the end of its 257th meeting, the fourth this year, the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) voted to maintain status quo by retaining the, Monetary Policy Rate (MPR) at 14.0 percent, Asymmetric corridor around the MPR at +200/-500bps; Cash Reserves Ratio (CRR) at 22.5 percent; and Liquidity Ratio (LR) at 30.0 percent.
The Committee considered developments in the global and domestic economy since its last meeting including which includes, (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 percent year on year in first quarter of 2017, (5) continued drop in domestic headline inflation rate in June (at 16.10 percent year on year.
Noting the still-high food prices, which the MPC expects to moderate in third quarter 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 percent for the MPR.