Photograph — The Nerve Africa

After months of suspended meetings, the newly reshuffled Monetary Policy Committee (MPC) has made the decision to uphold lending rates as economic conditions continue to improve. This decision seems reasonable in the short term due to the current sticky inflation rate, and will also help to keep the economy steady until the 2018 budget is passed into law.

The committee, which is made up of 9 members, unanimously decided to leave the benchmark interest rate at 14 percent for the ninth consecutive quarter. With the argument being “that key macroeconomic variables have continued to evolve in a positive direction in line with the current stance of macroeconomic policy and should be allowed more time to fully manifest,” as stated in the released communique. These reasons are firmly identical to the resolution at the last meeting of the MPC in November last year.

The committee was unable to form a quorum for the proposed January meeting and the subsequent March schedule as a result of the political friction between the presidency and the Senate.

The CBN Act of 2007 that empowers the MPC to formulate monetary and credit policies, stipulates that the committee should have 12 members, headed by the governor of the Central Bank of Nigeria. It also states that a minimum of six members is required to form a quorum at any meeting. The MPC failed to convene as scheduled in January and postponed its March meeting because it lacked quorum after five members retired last year. After months of a logjam with the federal government over the appointment of the EFCC boss, Ibrahim Magu, the Senate finally approved five of six candidates including two new central bank deputy governors on March 22.

Nigeria’s macroeconomic conditions have been on a favourable rise since the last meeting in November with the level of external reserves at US$46.699 billion as at March 29, 2018, and inflation on a downward trend for thirteen consecutive months to 14.33 percent in February 2018 from 18.72 percent in January 2017.

However, in spite of the above mentioned rates, consumer prices are vulnerable and food inflation is still high at 17.59 percent. The committee agreed that cutting the lending rate “would strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing.” But also noted that it could “lead to a rise in consumer prices, generating exchange rate pressures on the currency in the process.”

The effects?

Nothing major. The decision would only keep the economy steady in the short term. The major action that would impact the economy would come from the fiscal policies of the federal government and the implementation of the budget for the year. As it is rightly noted by the committee the risks of the delayed passing of the Appropriation bill and implementation would negatively affect the current positive outlook. A favourable 2018 for the Nigerian economy would be “predicated on the quick passage and effective implementation of the 2018 budget, improved security, foreign exchange market stability as well as favourable crude oil prices.”

Alongside the benchmark rate, the committee also agreed to set the Cash Reserve Ratio (CRR) at 22.5 percent; Liquidity Ratio at 30.0 percent; and Asymmetric corridor at +200 and -500 basis points around the Monetary Policy Rate. The next meeting of the committee is proposed for May.

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