In tandem with analysts’ expectations, the Monetary Policy Committee of the Central Bank of Nigeria (CBN) Tuesday kept monetary policy steady by leaving the benchmark interest rate, the monetary policy rate (MPR) and other key monetary indicators unchanged.
This is just as it maintained its upbeat view of the economy, signalling its conviction that a solid recovery will gradually pave way for downward review of rates to stimulate growth and consumption.
The monetary regulator specifically retains MPR at 14 percent, ditto cash reserves ratio at 22.5 per cent, liquidity ratio at 30 percent, and the asymmetric window at +200 and -500 basis points around the MPR.
Godwin Emefiele, the CBN governor, who announced the decision of the committee at the end of a two-day meeting, said it was to early for a cut due to the inflation rate being above target and the need to allow more clarity for the economy.
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Emefiele, who identified geopolitical tensions such as the situation with North Korea as key risks to the global economic growth, noted that Nigeria, Brazil and South Africa all exited recession in the second quarter of 2017.
He said that committee members voted 6 to 1 to retain the MPR. The MPC also revealed that four banks have so far failed to meet minimum capital requirement.
The committee welcomed the gradual implementation of the 2017 budget, convergence in Nigeria’s exchange rates but express concerns on the continued rise of food prices. It attributed the high food index to attacks on farmers by herdsmen and flooding in some parts of the country.
The MPC also said it was pleased that Nigeria has escaped recession but notes that growth remains fragile, adding that investors favoured the investors forex window to the parallel market, just as it commended the federal government for signing the executive order on ease of doing business.
Ahead the decision to hold rates, financial analysts and the business community had forecast policy rate retention on the grounds that the CBN would want to focus on fighting inflation and shoring up the local currency.
The MPC has kept its interest rate at a record-high 14 percent since July 2016, trying to support the economy, and analysts say it would probably hold it there at its decision this week to contain above-target consumer-price growth.
“The upswing in inflation may probably give the MPC, led by Governor Godwin Emefiele, room to hold off on a rate cut,” according to all except one of 16 economists surveyed by Bloomberg.
Data available from the National Bureau of Statistics showed that the economy experienced positive gross domestic product growth for the first time since August 2016 in Q2 2017.
The economy had slipped into its worst recession in 29 years in August 2016.