Nigeria central bank retains all monetary policy rates

The Central Bank of Nigeria Governor, Godwin Emefiele, announced on Tuesday that the Monetary Policy Committee has decided to retain the country's benchmark interest rate at 14% and leave the existing cash reserve ratios for commercial banks at 22.5%. The committee's decision comes against a backdrop of lingering uncertainty in the global economy, with various economic and socio-political developments around the world causing complications in the policy environment. The global economy saw a slight improvement in GDP growth during the fourth quarter of 2016, reaching 2.7% year-on-year, driven by gains in both developed and emerging markets. However, uncertainties persisted due to factors such as Brexit, protectionist sentiments, divergent monetary policies, and volatile commodity prices. The protectionist stance of the US administration and increased shale oil production in the US posed challenges to oil prices, potentially impacting global trade and economic recovery. Challenges in emerging markets and developing economies, such as low commodity prices and currency volatility, continued to pose headwinds to growth. Despite these challenges, the IMF forecasts a slight uptick in global economic growth from 3.1% in 2016 to 3.4% in 2017. On the domestic front, Nigeria's economy remained in recession with inflationary pressures unabated. While the economy contracted by 1.5% in 2016, recent data showed a moderate recovery in the non-oil sector, emphasizing the need for diversification away from oil. The Committee recognized that fiscal policy remained essential in addressing key negative trends such as economic stagnation, high unemployment, and inflation. Money supply and credit growth were below their benchmarks, with inflation seeing a slight decline in February, driven by base effects. However, food prices continued to rise, reflecting cost pressures and currency depreciation. Interest rates in the money market were stable, but the capital market and foreign exchange inflows saw declines. Looking ahead, the Committee expects prospects of output recovery in 2017, hinging on the economic recovery and growth plan, foreign exchange policies, and peace efforts in the Niger Delta region. Downside risks include slower global economic activity, US monetary policy tightening, and lower oil prices. The Committee evaluated arguments for tightening and loosening monetary policy, ultimately deciding to maintain a hold on all policy parameters. While considering the need for growth stimulation, the Committee recognized the risks of exacerbating inflation and exchange rate pressures if rates were loosened. It reiterated the importance of financial stability, urging proactive measures to address rising non-performing loans in the banking sector. The Committee acknowledged the positive impact of its interventions in the agriculture sector and expressed optimism in the economic recovery plan's potential to fast-track growth. In a 9-1 decision, the Committee opted to retain the NPR at 14%, CRR at 22.5%, liquidity ratio at 30%, and asymmetric corridor at plus 200 and minus 500 basis points. This decision reflects a commitment to maintaining stability in monetary policy amidst ongoing economic uncertainties both globally and domestically.