The Central Bank of Nigeria’s Monetary Policy Committee kept the benchmark interest rate unchanged at 27.5 percent in its record 300th meeting.Â
This comes following additional efforts at stabilizing the naira and inflation, which are now at a two-year low.
Nigeria’s currency also demonstrated some resilience, rebounding after two weeks of subdued trading. However, the MPC said that medium-term budget support will continue to be needed to sustain this trend, particularly in the rising foreign exchange inflows. So long as international oil markets continue to be volatile due to geopolitics and trade wars, though, the government’s determination to support domestic production and diversify export revenues, particularly of gas and non-oil assets, also bodes well for sustained growth in foreign currency supply.
CBN Governor Yemi Cardoso also reaffirmed that pressure remains on inflation, occasioned by the increase in the price of electricity and persistent demand for foreign exchange. The MPC called for persistent reforms to boost market confidence and issued an invitation to fiscal authorities to double their efforts to optimize foreign exchange returns.
The MPC’s move to put the key policy parameters, such as the liquidity ratio and cash reserve requirement, on hold is a fine balancing act of avoiding inflation without causing capital flight. The hold, insiders explain, allows policymakers to wait and observe what is happening elsewhere in the rest of the globe’s economic space before they act.
Investment analysts usually learned a lesson from the hold. Investment banker Tolulope Alayande finds the grip reasonable given the tailwinds of the global economy. Centre for the Promotion of Private Enterprise’s Dr. Muda Yusuf also found the move reasonable, cautioning that further tightening would strangle economic activity under tight monetary conditions. Halo Nigeria Capital Management, Dr. Paul Uzum believed that easing prematurely would push capital out of the country and leave the naira open to more pressures.
University of Nigeria Professor Chude Nwude, for his part, maintains that Nigeria’s chronically high interest rates may be strangulating productive investment. Therefore, strategies for building a robust production base to underpin long-term economic expansion and a stable currency should be formulated.
Despite the losses, Nigeria’s foreign reserves continue to improve, and more reforms and openness have contributed to this. This has helped the naira regain its value in recent weeks since the exchange rate began exhibiting stability in the different segments of the market.
MPC’s conservative approach reflects the subtlety of steering the Nigerian economy in choppy global waters, the gradualist devotion to a fiscal and monetary balance strategy.
