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CBN retains interest rate at 12%

By on May 22, 2014

The Central Bank of Nigeria (CBN) Tuesday resolved to leave the monetary policy rate (MPR), otherwise known as benchmark interest rate, unchanged at 12 per cent with a corridor of +/- 200 basis points.

It also left the cash reserve requirement (CRR) both for public and private sector deposits unchanged at 75 per cent and 15 per cent respectively.

Addressing journalists at the end of the two-day Monetary Policy Committee (MPC) meeting in Abuja, the acting CBN Governor, Dr. Sarah Alade, said the Committee’s decision to hold rates at current levels was unanimous adding that only one member voted for an asymmetric corridor around the MPR.

Alade, who read the communique, also said the naira exchange rate had remained stable, adding that the country’s external reserves currently at $38.30 billion could support about nine months of imports cover.

She expressed satisfaction over the country’s overall domestic economic environment which according to her, remained stable with inflation contained within the target range following the recent stability in the foreign exchange market, stable interbank rates and strong growth outlook.

Alade who presided over the MPC meeting for the last time before the tenure of the suspended CBN governor Sanusi Lamido Sanusi expires in June, further said inflation had largely been contained within the targeted range within the single digit in the last 16 months.

Notwithstanding, the acting CBN governor said the major challenge for monetary policy was that of sustaining and deepening the outcomes of existing policies stressing that over the medium term, the major risks to price stability appeared to be emanating from both external and internal sources.

Specifically, she pointed out that the high systemic banking system liquidity, elevated security concerns and anticipated high election-related spending in the run-up to the 2015 general elections posed greater risks to the existing stability.

Moreover, Alade said high domestic liquidity could exert sustained pressure on both the exchange rate and consumer prices, as well as accentuate the already high demand for foreign exchange which could further deplete the country’s external reserves- in trying to defend the currency.

She said core inflation has continued to send conflicting signals since January 2014 noting that should the upward trend continue as observed in April, it could greatly influence the upward trend in prices.

Alade said:”We have observed stability in the foreign exchange market and the money market has also remained stable. We can also see what is happening in the capital market. So all round, I think we have achieved stability which the committee is very pleased about.”

She also said the demand for dollars have moderated significantly, saying that there have been increased investor confidence in the economy.

She added: “At this time of the year, generally it is to be expected that when companies are paying dividends, that there is going to be repatriation of dividend.

“We also talked about the impact of QE (quantitative easing) we had expected that there will be some capital outflow. We have also witnessed a little bit of uncertainty during February and March when investors were not just sure of what was happening.

“But I think we have gone beyond that now, we are beginning to see inflow- investors’ confidence has returned and now the outflow is less than the inflow we normally see.”

However, she said there are still concerns in emerging markets and developing countries as a result of underlying pressure on their currencies arising from capital flow reversals, increase in consumer prices, and declining inflows, which preclude the use of expansionary monetary policy to stabilise domestic output and employment in order not to dampen growth prospects in the short term.

On the global economic front, Alade cautioned that the outlook remained benign with prospects of steady and gradual improvements in the major economies as well as slowing but sustained healthy growth in the emerging markets and developing economies.

Alade said: “The Committee also expressed concern over the eroded fiscal buffers which have exposed the economy to vulnerabilities arising from both domestic and external shocks. The erosion has accentuated the regime of persistently high interest rates, elevated demand for foreign exchange and declining reserves accretion.

“The Committee enjoined the management of the Bank to continue to monitor developments in the fiscal space with a view to taking appropriate monetary policy actions.

 

 

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