MPC Policy Decision Has “Zero Impact” On Rates


ARM| A few minutes ago, the monetary policy committee of the Central Bank of Nigeria (CBN) voted to leave all policy parameters unchanged—in line with our views. In summary, 9 out of 10 members of the MPC voted as follows:

• Retain MPR at 14%
• Retain CRR at 22.5%
• Retain liquidity ratio at 30%
• Retain the asymmetric corridor around the MPR at +200bps/-500bps.

Whilst the MPC noted the decline in inflation on the back of base effects and decline in core component, the committee expressed its concerns on the uptrend in MoM inflation due to ascent in food prices. Here, while the apex bank expects moderation in prices the committee noted that still negative real yields and concerns over currency ruled out prospects for a cut in interest rates. On Currency front, the MPC was comfortable with  recent FX reforms and announced that it was targeting a convergence between the parallel and interbank exchange rates.

In terms of market impact, the decision to hold on all policy parameters is hardly surprising to us and indeed the market– with consensus largely expecting no change. Thus, we see limited impact of the committee’s decision on interest rates. That said, focus shifts to CPI readings in the coming months where we see scope for strong base effects from the 68% increase in fuel prices in 2016 to drive further declines in inflation to levels which should trigger MPC re-assessment of the current tightening stance.

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