Nigeria Leaves Monetary Policy Unchanged in May


At its May 20th, 2014, Nigerian Monetary Policy Committee decided to hold the benchmark interest rate at 12.0 percent, as inflation remains within single digit, while exchange rate stability was maintained.

The Committee also kept the cash reserves requirement on public sector deposits at 75 percent and the cash reserves requirement on private sector at 15 percent. The monetary policy rate corridor was retained at +/- 200 basis points. 

Excerpts from the statement by the Central Bank of Nigeria:

The Committee noted with satisfaction Nigeria’s overall domestic economic environment which has remained stable with inflation contained within the target range, the recent stability in the foreign exchange market, stable interbank rates and strong growth outlook. The key challenge for policy, in the Committee’s view, was that of sustaining and deepening the outcomes of existing policies. It noted, also, that over the medium term, the major risks to price stability appeared to be emanating from both external and internal sources.

The Committee noted with satisfaction Nigeria’s overall domestic economic environment which has remained stable with inflation contained within the target range, the recent stability in the foreign exchange market, stable interbank rates and strong growth outlook. The key challenge for policy, in the Committee’s view, was that of sustaining and deepening the outcomes of existing policies. It noted, also, that over the medium term, the major risks to price stability appeared to be emanating from both external and internal sources. 

From the external environment, risks to the domestic economy include the prospects for increased yields and interest rates in the US and the rather low level of economic activity in the emerging markets; both of which could have repercussions for foreign exchange inflows (private and official) and stability of the naira exchange rate. Internally, the key risk factors include the high systemic banking system liquidity, elevated security concerns and anticipated high election-related spending in the run-up to the 2015 general elections. High domestic liquidity could exert sustained pressure on both the exchange rate and consumer prices, as well as accentuate the already high demand for foreign exchange, further depleting the country’s external reserves. In addition, core inflation has continued to send conflicting signals since January 2014. If the upward trend continues as observed in April 2014, it could be a major factor in the upward trend in prices.

The Committee also expressed concern over the eroded fiscal buffers which have exposed the economy to vulnerabilities arising from both domestic and external shocks. The erosion has accentuated the regime of persistently high interest rates, elevated demand for foreign exchange and declining reserves accretion. The Committee enjoined the Management of the Bank to continue to monitor developments in the fiscal space with a view to taking appropriate monetary policy actions.

Nigeria Leaves Monetary Policy Unchanged in May


Central Bank of Nigeria | Isabel Felino | isabel.felino@tradingeconomics.com
5/20/2014 6:28:46 PM