CBN Leaves Interest Rate Unchanged at 14%

RateNigeria's Central Bank Governor Godwin Emefiele
  • CBN Leaves Interest Rate Unchanged at 14%

The Central Bank of Nigeria led Monetary Policy Committee on Tuesday left interest rates unchanged as widely anticipated.

The CBN Governor, Mr Godwin Emefiele, who announced the decision of the committee at the apex bank’s headquarters in Abuja said the committee left Monetary Policy Rate unchanged at 14 per cent, while the Cash Reserves Ratio was left at 22.5 per cent.

Also, Liquidity Ratio was retained at 30 per cent; Asymmetric corridor at +200 and -500 basis points around the MPR.

The governor said the committee strongly considered tightening monetary policy to further curtail the threat of a rise in inflation and sustain capital inflow in the face of sustained monetary policy normalization in the US.

According to him, despite the deceleration in headline inflation, the 11.23 per cent inflation rate recorded in June remains above the apex bank’s 6-9 per cent target range. This, he supported with the possible implementation of approved 2018 budget, N9.12 trillion, pre-election spending and injection from fiscal authorities, which are expected to provide the economy with additional liquidity that could pressure consumer prices even more. Therefore, the committee believed higher interest rates would rein-in inflationary pressure towards projected single digit, build investors’ confidence and stabilize the foreign exchange market.

On the contrary, the committee was of the view that while raising interest rates could curtail inflation rate at this time, it would weaken consumption, reduce new investments, and trigger the re-pricing of financial assets by deposit money banks, thus limiting credit funding to the real sector.

However, in response to various calls for lower interest rate, the governor said lower monetary policy rate would aid consumption but hurt capital inflows, disrupt foreign exchange, and escalate inflation rate as liquidity to the economy is expected to increase once the federal government commence implementation of the 2018 budget.

Therefore, the seven of the ten-member committee voted to maintain current MPR, while two voted for 50 basis points increase, the remaining member voted for 25 basis points raise. Suggesting that the committee is likely to hike rate in the fourth quarter depending on the implementation of the 2018 budget, the level of pre-election spending, and the state of global economy, especially the U.S monetary policy, Brexit negotiation and global trade tensions.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

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