MPC Holds Base Lending Rate at 14% for 10th Consecutive Time

By Bamidele Famoofo

At the end of its 261^st meeting (second this year), the Central Bank of Nigeria’s Monetary Policy Committee (MPC) voted to maintain status quo for the 10th consecutive session by retaining the Monetary Policy Rate (MPR) at 14.0 percent.

Asymmetric corridor around the MPR was held at +200/-500bps; while Cash Reserves Ratio (CRR) at 22.5 percent; and Liquidity Ratio (LR) at 30.0 percent.

The decision was in line with the expectations of analysts who predicted that status quo will be maintained despite falling inflation.

The Committee considered developments in the global and domestic economy since its last meeting including: sustained global growth momentum; easing geopolitical tensions; and easy financial conditions in the eurozone, UK, and Japan. 

Meanwhile, concerns were hinged on downside risks, touching on US-China trade tensions, protectionist stance, and geopolitical concerns in the Middle East.

On the domestic front, the Committee noted the continued drop in headline inflation rate in April at 12.5% y/y, rebounding crude oil prices and stable production, FX stability amid strong external reserves, and sustained GDP growth.

On the recently released Q1-18 GDP numbers, the MPC acknowledged the continued fragility of the domestic economy, thus reiterating the urgent need for reforms and fiscal stimulus. Commenting on growth outlook, the Committee cited drags from the late passage of the 2018 budget, growing level of sovereign debt, and security challenges ravaging the agriculture sector.

According to a communiqués issued by the MPC, members were faced with the choices of maintaining status quo, tightening, or easing monetary policy. Amid strong arguments for the three positions, the choice of seeking further clarity on the evolution of major macroeconomic fundamentals culminated into a decision (8 votes to 1) of holding policy rates constant, while allowing for policy flexibility as developments unfold in the macroeconomic space. 

In particular, the Committee highlighted the impact of monetary policy normalisation in the U.S. – with a number of currencies in emerging markets experiencing pressure already.

On private sector lending, the MPC looks to seeking innovative ways by Deposit Money Banks to increasing lending. Again, members highlighted that loosening at this time may not necessarily spur private sector lending or drive fixed income yields lower, considering the high cost of doing business.