Nigeria’s central bank maintains all major policy rates to sustain economic recovery

Nigeria’s central bank has held its benchmark interest rate at 14 percent, despite increasing the call for rate loosening.

This was the decision of the Monetary Policy Committee (MPC) meeting which ended on Tuesday, September 26, 2017.

The policy rate has been at this level since July 2016. However, many analysts argued that the committee would vote for retaining policy rate despite the calls for a reduction.

The Chief Economist of B. Adedipe Associates, Dr Adedipe says " I don’t believe the CBN has the ambition at the moment to cut interest rates. They are still not comfortable with the rate of inflation and they also believe that foreign investors will be discouraged from returning to the country if rates are slashed.”

More so, recent statistics have shown that inflation rate in Nigeria has little to do with the interest rate as it is driven more by structural factors.

The CBN Governor, Mr Godwin Emefiele explained in a communique that the committee’s decision to retain all policy rates is to support economic recovery momentum of the country.

“… although tighten rate would help reign-in inflation and strengthen the stability in the foreign market, the committee felt that it would further widen the income gap, depress aggregate demand and adversely affect credit delivery to the private sector,” the communique reads in part.

“With respect to loosening, the committee believed that although it would make more attractive for Nigeria to acquire assets at cheaper price. Thus increasing their net worth and therefore stimulate confidence as spending rises. We were, nevertheless, constrained that loosening at this time would exacerbate inflationary pressure and worsen the foreign exchange and inflationary condition.”

“On the arguments to hold, the committee believes the impact of fiscal policy has begun to manifest in the exit of the economy from 15 months recession. Although still fragile, the fragility of the growth makes it imperative to allow more time for complementary decision and strengthen the recovery,” Mr Emefiele stated.

The implications of the decisions are that the cost of fund would remain and little or there will be no improvement in the banking sector's liquidity. As the asymmetric corridor was also left at -/+200 basis points.

Nigeria’s central bank maintains all major policy rates to sustain economic recovery

Nigeria’s central bank has held its benchmark interest rate at 14 percent, despite increasing the call for rate loosening.

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