Nigeria central bank retains monetary policy rate at 14%, says loosening will lead to rise in consumer prices

The Monetary Policy Committee of the Central Bank of Nigeria, Wednesday, left the monetary policy rate (MPR) unchanged at 14 percent.

Godwin Emefiele, governor of the central bank, announced the decision of the committee at the end of a two-day meeting held at the apex bank’s headquarters in Abuja.

Emefiele said nine members of the committee unanimously agreed to maintain the current monetary policy stance.

He said apart from the MPR, which was retained at 14 percent, the committee also retained the cash reserves ratio at 22.5 percent, liquidity ratio at 30 percent, and the asymmetric window at +200 and -500 basis points around the MPR.

Most analysts had expected rates to be kept on hold with cuts seen later this year.

The central bank cancelled its January meeting due to an inability to form a quorum after several departures reduced it to just five out of 12 members.

The decision to raise key interest rate to 14 percent was made in July 2016, and has been kept at the same level since then. At 14 percent, Nigeria’s MPR is currently at its highest in at least 12 years.

“The committee noted that loosening will strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing. This may, however, lead to a rise in consumer prices, generating exchange rate pressure on the currency in the process,” Emefiele said.

“The committee also believes that loosening could worsen the current account balance through increased importation.

“On the argument to hold, the committee believes that key variables have continued to evolve in line with the current stance of macroeconomic policies, and should be allowed more time to fully manifest.

“In consideration of the foregoing, the committee decided unanimously by a vote of all members present, to retain monetary policy rate (MPR) at 14 percent, alongside all other policy parameters.”

Emefiele said the new members did not decide to go with the previously-held decisions of the CBN because they are new, but because they are “a strong set of people, who understand their responsibilities and have decided to hold positions for now”.

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