The Committee was satisfied with the prevailing macroeconomic stability achieved during the period, including the single digit inflation, stable banking system, exchange rate stability, favorable output growth, capital market recovery and growth in external reserves, thus sustaining internal balance and external viability.
The Committee also noted the recent volatility in the foreign exchange market and also recognized that the commitment of the Bank to defend the currency in the face of capital flow reversal and significant revenue attrition has stemmed the depreciation of the naira. Consequently, the Bank has been able to sustain the objectives of financial and price stability.
The Committee observed the build-up in excess liquidity in the banking system, and expressed concern over the rising cost of liquidity management as well as the sluggish growth in private sector credit, which was traced to DMB’s appetite for government securities.
The Committee expressed strong concerns about the risks posed to government revenues from oil theft, less than expected production, new discoveries of shale oil, the fast increasing number of African oil exporters, the dwindling market for Nigerian crude as well as the inevitability of a fall in global oil prices as well as capital flow reversal, which may impact the current global (dollar) carry trade, for which Nigeria has been a major beneficiary.
The Committee considered the inflationary outlook for the rest of the year as benign. However, principal risks remain largely due to the loose fiscal stance and rising deficit, excess liquidity in the banking system and risks to the exchange rate due to a combination of revenue shocks and external developments.
The Committee decided to maintain the symmetric corridor around the Monetary Policy Rate at +/-2 percent; retain the Cash Reserve Requirement (CRR) at 12 percent; Introduce a 50 percent CRR on public sector deposits. This will be applied on Federal, State and Local Government deposits and all MDAs. For other deposits CRR will remain at 12 percent.