Nigeria’s central bank keeps rates steady, cites ‘fragile’ economic recovery


Retain MPR at 11.50%
Retain asymmetric corridor at +100bps / -700bps
Retain CRR at 27.50%
Retain liquidity ratio at 30

ABUJA, Jan 25 – Nigeria’s central bank kept its benchmark interest rate unchanged at 11.5% on Tuesday to help a fragile economic recovery, Governor Godwin Emefiele said.

Emefiele said all 10 members of the monetary policy committee voted to hold rates, marking the ninth decision to hold since the bank cut rates in September 2020.

Nigeria’s double-digit inflation and low revenues have hampered the government’s ability to stimulate the economy.

“A hold position will signal MPC’s realisation of the fragility of the growth recovery,” Emefiele said.

Inflation, which ticked up to 15.63% in December, is expected to moderate at the end of the first quarter, the governor said.

The MPC revealed that with rate hike, risk adverse portfolio investors would reassign their portfolios from perceived riskier emerging market securities to less risky advanced market securities amid expectations of improved yields.

On the domestic front, the Committee considered the increase in the country’s inflation rate in December 2021 as a temporary development which was driven chiefly by demand during the yuletide.

The members also believe that inflation will moderate further going forward amid significant interventions in the agricultural sector.

They expect the Nigerian economy to continue with a positive growth following the impressive growth recorded in the third quarter of 2021, reflecting continuous recovery from the recession.

The Committee’s decision to hold rate was in line with Cowry Research’s expectation which was specifically expressed in our Outlook and Investment Strategies in 2022 report.

We feel that the Committee would weigh the option of increase in rate on the country’s fragile economic growth.

Nevertheless, the MPC still appears to be pressured to increase policy rate amid expectation of policy normalization in advanced economies and rising inflation driven by supply chain issues and excess fund disbursed to cushion Covid-19 effect on the economy.

For us, the big question is, will the MPC give up on supporting domestic economic growth?

President Muhammadu Buhari’s government on Monday walked back on a plan to scrap a costly fuel subsidy saying the timing was not right as this could increase inflation pressures.

A cabinet minister said on Tuesday the government wanted to keep the subsidy for another 18 months, which will disappoint foreign lenders, such as the World Bank and International Monetary Fund (IMF) who have constantly flagged the subsidy as a factor contributing to Nigeria’s large deficit. read more

Africa’s largest economy grew just over 4% in the third quarter, its fourth consecutive quarterly expansion, after a COVID-19-induced recession in 2020. However, growth slowed compared with the previous quarter.