The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) held its benchmark interest rate for a fourth straight meeting, prioritizing the recovery of the economy from last year’s recession over fighting inflation that’s near a four-year high.
It had been earlier predicted that, the slow down in inflation rate in April may give the doves a weapon to silence the hawks.
Reports last week said that, the five basis points (bps) slow down in inflation last month, may force the Monetary Policy Committee (MPC) to maintain its dovish stand when it meets next (this) week.
Ahead of next week’s monetary policy committee meeting, the National Bureau of Statistics (NBS) announced a surprise 5bps moderation in headline inflation to 18.12 per cent, as temperance in food inflation (-23bps to 22.72 per cent Year-on-Year (YoY)) offset a 7bps increase in core inflation to 12.74 per cent.
The monetary policy committee kept the rate at 11.5 per cent, Governor Godwin Emefiele said on Tuesday in an online briefing. The decision by the 10 members who attended the meeting was unanimous. That’s a change from March, when six favored a hold and three voted for a hike of at least 50 basis points. The median of six economists’ estimates in a Bloomberg survey was for an unchanged stance.
Inflation, which slowed marginally to 18.1 per cent in April, is driven by supply-side factors, including insecurity and poor infrastructure, Emefiele said. The MPC sees price-growth pressures easing as domestic supply grows, he said.
Food prices have been a key driver of headline inflation due to disruptions caused by an Islamist insurgency in the northeast, a worsening conflict between nomadic cattle herders and crop farmers in key agriculture areas and restrictions on foreign-exchange access for imports including rice, dairy and fertilizer.
The central bank urged the government to intensify efforts to tackle insecurity and also to avoid another strict nationwide coronavirus lockdown because that will weigh on the economy, Emefiele said.
The MPC cut the key rate by 200 basis points in 2020 to support Africa’s largest economy against the impact of coronavirus lockdowns and a plunge in oil prices. However, gross domestic product still contracted the most since at least 1991 and while Nigeria emerged from a recession in the final three months of last year, data on May 23 showed the rebound is still very fragile, with first-quarter growth at 0.5 per cent.
The economy remains on a trajectory of recovery and recent data suggests that will continue through 2021, Emefiele said.
GDP could expand 2.5 per cent this year and 2.3 per cent in 2022, according to the International Monetary Fund.