Nigeria Cuts Key Interest Rate to 13.5%

The Central Bank of Nigeria decided to cut its benchmark interest rate by 50 bps to 13.5% on March 26th 2019, mainly to stimulate the economy. The move surprised markets who had expected the rate to remain steady at 14% and marks the first rate cut since November 2015. Six out of the eleven members of the monetary policy committee voted to reduce the current monetary stance. In February 2019, the annual inflation edged down to 11.3% from 11.4% in January, but still above the Bank's target of 6-9%. Policymakers added that the economy is projected to grow between 2.7% and 3% in 2019.
Central Bank of Nigeria | Luisa Carvalho | 3/26/2019 5:47:30 PM
Excerpts from the Statement by the Central Bank of Nigeria:

The Committee observed the tepid output growth in 2018, but noted with satisfaction that it strengthened in the last quarter of 2018 as well as the positive forecast for 2019. Output data from the National Bureau of Statistics (NBS) indicate that real Gross Domestic Product (GDP) grew by 2.38 per cent in Q4 2018 from 1.81 and 2.11 per cent in the previous quarter and corresponding period of 2017. The major impetus for growth came from the non-oil sector, which grew by 2.7 per cent in Q4 2018, while the oil sector contracted by 1.62 per cent. Available data on key macroeconomic indicators for output growth in the first quarter of 2019, and forecasts for the rest of the year, suggests continued positive outcomes. 

The Committee also noted the continued moderation in inflation as headline inflation (year-on-year) declined further to 11.31 per cent in February 2019 from 11.37 and 11.44 per cent in January 2019 and December 2018, respectively. The decrease in headline inflation was driven mainly by food inflation, which declined to 13.47 per cent in February 2019 from 13.51 per cent in January 2019, while core inflation declined marginally to 9.80 per cent from 9.91 per cent in the previous month. 

It commended the recent upsurge in capital inflows into the economy, noting this to be a demonstration of sustained confidence by the foreign investor community in the Nigerian economy. The Committee was, however, not unmindful of developments in the global economy, noting the recent slowdown in growth in some advanced economies and the dovish stance of some major central banks as an early warning sign of broader macroeconomic vulnerabilities.

The Committee also noted that having achieved a relatively stable exchange rate with price stability, it is imperative that monetary policy should explore the next steps necessary for enhancing growth, reducing unemployment and diversifying the base of the economy. It further observed that per capita income growth is very negligible, while aggregate demand remains weak. Aggregate output also remains below the potential output level, implying sufficient headroom for noninflationary growth. This new direction has, therefore, become imperative against the backdrop of the aftermath of the general national elections and strong inflow of foreign direct and portfolio investments into the economy. 

In its consideration of the best monetary policy option, the Committee noted the need for all agencies of Government to work hard, not only in consolidating the growth so far achieved, but also in ensuring that appropriate policies are put in place and implemented to create jobs on a mass scale and diversify the economy in a proper direction. In doing this, the policy options facing the MPC at this meeting is a decision between retention of the current stance of monetary policy or a slight loosening of the policy rate, backed by the substantial stability of the major macroeconomic indicators. The Committee felt that given the relative stability in the key macroeconomic variables, there is the need to signal a new direction that is pro-growth. 

In summary, the MPC decided by a vote of 6 (six) out of the eleven (11) members to:
1. Adjust the MPR by 50 basis points from 14.00 to 13.50 per cent;
2. Retain the asymmetric corridor of +200/-500 basis points around the MPR;
3. Retain the CRR at 22.5 per cent; and
4. Retain the Liquidity Ratio at 30 per cent. 

Nigeria Cuts Key Interest Rate to 13.5%