Update1: CBN leaves MPR at 14% on inflation, concerns

For the sixth straight time since 2016, the Central Bank of Nigeria (CBN) held the Monetary Policy Rate (MPR) steady at 14 percent, citing need to allow gains of existing policies to fully trickle down.

The CBN also left the Cash Reserve Ratio (CRR) at 22.5 percent , the Liquidity Ratio unchanged at 30 percent and also the Assymetric corridor around the MPR at +200 and -500 basis points.

The CBN is particularly concerned about high inflation at 16.1 Percent and also what it sees as “liquidity surfeit” in the banking sector.

Nigeria’s inflation Nigeria’s inflation slowed 0.15 percent points to 16.10 percent in June 2017, majorly helped by the CBN recent forex policies which have so far created dollar liquidity and dampened effect of imported prices into the largely import-dependent nation.

This is the fifth consecutive decline in the rate of inflation since January this year,

But the CBN is not yet satisfied, arguing that any movement in rates at this time could dampen inflation gains and discourage much needed investments.

Though the CBN commends the fact that inflation numbers were trending downwards, it is uncomfortable that the rate is still significantly above its 6-9 percent policy reference band.

The Apex bank is therfore concerned that loosening would exacerbate inflationary pressure and diminish gains so far achieved with the exchange rate of the naira.

The apex bank is also cautious that further tightening would widen income gap, depress aggregate consumption and adversely affect credit to the real sector of the economy.

Announcing the outcomes of the two-day meeting of the Monetary Policy Committee (MPC) of the apex bank, the CBN governor, Godwin Emefiele, however, raised hope of a possible waning in inflation by August.

Emefiele explained there is also a convincing argument that an accommodating monetary policy will further raise the negative real interest rate as the gap between interest rate and inflation widens.

He said the MPC also noted high cost of capital interest rate in the economy remains high and not helpful to growth.

The governor also projected a fragile economic recovery by the second quarter of 2017 but warned that the growth could relapse if government fails to put in place the needed fiscal stimulus and also push reforms to sustain growth gains.

 

Onyinye Nwachukwu, Abuja