Nigeria’s Central bank substantially loosen monetary policy by cutting benchmark rate to 11%

LAGOS, Nigeria, Capital Markets in Africa — On 24 November 2015, the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) meeting was held where the MPC resolved to reduce the monetary policy rate (MPR) to 11 percent from  13 percent, Governor Godwin Emefiele told journalists today.

Nigeria’s central bank reduced its benchmark interest rate for the first time in six years, deviating from its counterparts in most of African countries that have tightened monetary policy in the face of weakening currencies. The MPC change also the symmetric corridor of 200 basis points around the MPR to an asymmetric corridor of +200 basis points and -700 basis points, around the MPR. 

“What we’ve decided to do at this meeting is that we must stimulate growth,” Emefiele told reporters after the decision. “We don’t have a choice.”

The central bank also reduced the cash reserve ratio for a second consecutive meeting to 20 percent from 25 percent. Emefiele said that will be targeted at banks that are lending to industries creating jobs, such as agriculture, infrastructure and solid minerals.

A slowdown in inflation and a weak economy has given the MPC reason to ease monetary  policy. The inflation rate reduced for the first time in almost a year in October to 9.3 percent, however it above the bank’s inflation target band of  6 percent to 9 percent. The economy grew by 2.8 percent in the third quarter on a year-on-year basis, slightly higher than the 2.4 percent recorded in the previous quarter.

However, analysts/economists were shocked and opined that the monetary loosen is a highly unorthodox move by the central bank. Given that the country faces high inflation, pressure on its currency, and it desperately needs to attract foreign capital to fund the current account deficit created by low oil prices, which are roughly similar scenarios faced by  central banks in Ghana, Angola, Kenya, Mozambique, Zambia, and South Africa — these central banks have raised interest rates to ward off inflation threats stemming from weaker currencies.

To read MPC’s Communique click MONETARY POLICY COMMITTEE MEETING Release Statement