Nigeria Lowers Key Rate to 11%

The central bank of Nigeria unexpectedly cut its benchmark interest rate by 200 bps to 11 percent on November 24th. It is the first reduction since 2009 aiming to boost growth amid high inflation. Policymakers also widened the interest rate corridor by 200 bps above and 700 bps below the benchmark interest rate, bringing the cost of borrowing to commercial lenders to 4 percent and cost of lending to 13 percent. The cash reserve ratio was also lowered to 20 percent from 25 percent.
Central Bank of Nigeria | Yekaterina Guchshina | 11/24/2015 5:44:11 PM
Excerpts from the Statement by the Central Bank of Nigeria:

The Committee acknowledged the continued fragile global economic environment, including the possibility of monetary policy normalization in the United States; poor outlook for commodity prices and further slowdown in the Emerging Markets and Developing Economies. The MPC also noted the fragility of the domestic macroeconomic environment; reflected partly in low output growth, soft oil prices, low credit to the high employment elastic sectors of the economy and sustained inflationary pressure, which however, softened moderately in October. The MPC was, particularly, concerned that the previous liquidity injections embarked upon through lowering of the Cash Reserve Ratio (CRR), in the last MPC, has not transmitted significantly to improved credit delivery to key growth and employment in sensitive sectors of the economy. Rather, more credit was to sectors with low employment elasticity. The Committee restated its commitment to evolve and implement measures that would be supportive of consolidating and strengthening in output growth with an eye on price stability. The Committee, however, recognized the limits of monetary policy under conditions of huge infrastructure gap and significant global financial market fragilities. While noting the imperative of complementary fiscal policies to augment monetary policy, under the circumstance, monetary policy must remain bold in charting the desired course that would stimulate sustainable output growth in Nigeria. 

Given the situation, the MPC emphasized the necessity of focusing on financial market stability and proactive engagement of policy and administrative levels needed to support the environment in which market institutions operate. On their part, market institutions are encouraged to employ more stringent criteria in evaluating their portfolio and business decisions. 

The MPC considered that although, headline inflation had remained at the borderline of single digit, the observed moderation, especially in the month-on-month inflation, provided some room for monetary easing to support output in the short to medium term, while keeping in focus the primacy of price stability. In effect, the Committee will continue to monitor developments around the Naira exchange rate, interest rates, and consumer prices, even as targeted measures are needed to channel liquidity to the key sectors of the economy. 

In consideration of the weakening fundamentals of the economy, particularly the low output growth, rising unemployment and the uncertainty of the global economic environment the MPC decided:

(i) Reduce the CRR from 25.0 percent to 20.0 percent; 

(ii) Reduce the MPR from 13.0 percent to 11.0 percent; 

(iii) Change 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.

Nigeria Lowers Key Rate to 11%