The Monetary Policy Committee (MPC) for the third time in a row has retained all key
Monetary aggregates in general and in particular keeping the benchmark rate at 14%, thereby defying some analysts' expectation of rates cut. MPC reviewed development in the global economy and identified persistent undercurrents, macroeconomic headwinds and re-emergence of protectionism with its effect on trade, financial flows and investment. As evident, MPC also acknowledged recovery of Nigeria’s economy from recession and highlighted the growth potentials for 2017, as envisage in the recently launched Economic Recovery and Growth Plan (ERGP). Against this backdrop, at the end of its second bimonthly meeting in 2017, MPC decided to:
Retain the MPR at 14%;
Retain the CRR at 22.5%;
Retain the Liquidity Ratio at 30.00%; and
Retain the Asymmetric corridor at +200 and -500 basis points around the MPR
According to the communique, MPC members anchored the its decisions on domestic economic outlook as well as global economic dynamics. Inflation in February, 2017, shows that month-on-month inflation rose to 1.5% in February, 2017 from 1% in January, 2017. In addition, the Nigeria banking sector is still showing some signs of less resilient, therefore calling for enhanced regulations to maintain financial stability. With the below benchmark performance of money market indicators, rate cuts will make savings less attractive since real interest rate is still negative. Finally, the Federal Reserve monetary tightening programme calls for a cautious monetary management, the rising rates in the United States may constitute liquidity challenges in developing countries as investors may prioritise security of investment against high returns.
In our view, we believe the monetary policy has reached its tightening limit for now but accommodative policy is not an alternative, this is based on the subsisting domestic rigidity and global volatility. In the NESG Macro economic, that was released earlier in the year (See NESG Macro Outlook), we said fiscal policy should complement monetary thrust to fast track recovery and promote growth and to ultimately achieve the objectives of ERGP. NESG (View MPC Communique)