By Oludare Mayowa
Chief Economist, Africa and Middle East Global Research Standard Chartered Bank, Razia Khan on Tuesday said that there was “little surprise in the CBN’s decision to keep all parameters on hold” at its November Monetary Policy Committee (MPC) meeting, given the recent acceleration in inflation.
In spite of the fact that Nigeria’s economy slipped into recession in the third quarter of the year, the Central Bank of Nigeria (CBN) retained its benchmark interest rate at 11.5 percent on Tuesday.
Inflation peaked at 14.32 percent in October, driven more by high food prices, according to the National Bureau of Statistics (NBS).
The CBN also retained all other parameters such as the Cash Reserves Requirement (CRR) at 27.5 percent and Liquidity Ratio (LR) at 30 percent.
Khan in an email response to the Global Financial Digest said there was little any adjustment in monetary policy parameters could do to lift the current low or near-zero interest rate regime in the country.
She said that the CBN still attributes its decision to retain its policy rate on non-demand factors, and expects some improvement in food prices with the harvest, and better security.
According to her, the CBN sounded an optimistic note on the recovery trajectory of the economy, predicting that the fourth quarter 2020 GDP growth would likely improve.
“Of greatest relevance for markets – not only was there little adjustment in monetary policy parameters that might lift market interest rates from current low levels, but the CBN reiterated its commitment to FX stability, as other reforms in fuel pricing and the power sector proceed.
“The overall read on this supports our view that we should expect little in the way of any devaluation intent on Nigeria’s official FX markets in the near-term,” Khan said.
Nigeria’s Gross Domestic Product (GDP) shrank 3.6 percent in the third quarter of the year, compared with a 6.1 percent contraction in the previous quarter.
The country’s economy has contracted for a second consecutive quarter, which aligns with the definition of recession by economists.