Nigeria central bank retains monetary policy rate at 14%

The Central Bank of Nigeria Governor Godwin Emefiele recently announced that the Monetary Policy Committee (MPC) has decided to retain the country's benchmark interest rate at 14 per cent. The decision comes amidst slowly improving global growth prospects, despite threats of anti-globalization sentiments in major advanced economies. The Nigerian economy has shown resilience with focused macroeconomic policies and improvements in oil prices, leading to a cautiously optimistic outlook for the remainder of 2017. The MPC, consisting of eight out of 12 members, assessed both global and domestic economic and financial environments in the first five months of 2017. Global economic growth has been estimated to expand by 2.8% in the first quarter of the year, supported by higher commodity prices and robust domestic demand in advanced economies. However, uncertainties in macroeconomic policies in advanced economies continue to cloud prospects of sustained recovery. The Nigerian economy contracted marginally by 0.52% in the first quarter of 2017, a positive development compared to the same period in 2016. Key growth activities were led by sectors such as mining, quarrying, metal ores, and transportation. Improved foreign exchange management has had positive effects on the manufacturing sector and non-oil activities, with the non-oil sector growing by 0.72% in the first quarter, driven by agriculture and solid minerals. The Committee urged fiscal authorities to promptly implement the approved 2017 budget, especially focusing on capital expenditure to sustain the momentum of recovery, boost employment, and restore confidence in the Nigerian economy. While headline inflation moderated to 17.24% in April, the food index component rose to 19.3%. The Committee emphasized the need to sustain foreign exchange management policies to pass through benefits to consumer prices, despite concerns such as high energy and transportation costs impacting prices. Money market interest rates remained stable, influenced by liquidity levels in the banking system. Equity market indices saw positive trends, with the stock market gaining confidence due to improvements in foreign exchange supplies and capital inflows. The overall outlook suggests prospects of economic recovery in 2017, subject to the timely execution of economic plans and initiatives. The Committee acknowledged downside risks, including low oil prices, global uncertainties, and inflationary pressures. While welcoming the retreat in inflation and stability in exchange rates, the Committee opted to maintain the current policy configuration to allow existing policies to achieve their goals. The high cost of capital in the economy remains a concern, with the Committee wary of loosening policies that could exacerbate inflation. In conclusion, the MPC unanimously decided to retain the NPR at 14% alongside other policy parameters. The decision reflects a balancing act between supporting economic recovery and addressing inflationary pressures. Despite positive economic signals, the Committee remains cautious about altering policy settings in a significant manner at this juncture.