The Central Bank of Nigeria (CBN)’s monetary policy committee (MPC) voted by majority on 24 November to cut the monetary policy rate (MPR) by 200 basis points (bp) to 11%. The CBM also lowered its cash reserve ratio (CRR) to 20% from 25%, and introduced an asymmetric corridor of plus 200 bp and minus 700 bp around the MPR.
The CBN's surprise cut to its key policy interest rate underscores its strong concerns about the country's growth prospects over the short to medium term. Its bolder measures are primarily geared towards stimulating growth, amid worries that depressed world crude oil prices and global economic uncertainties continue to weigh on the country's economic fundamentals – observed via low output growth, sustained inflationary pressure, and rising unemployment.
The lowering of the CRR to 20% from 25% is intended to bolster liquidity in the banking system and further stimulate lending. It follows on the heels of the CBN's reduction of the CRR in September to 25% from 31%. In a bid to prevent a repeat of disappointing results from the last CRR reduction – when no significant improvement was observed in "credit delivery to key growth and employment sensitive" economic sectors – the central bank has tightened conditions this time.
Liquidity available from the new 20% CRR will only be given to banks that direct it towards sectors with high employment potential "such as agriculture, infrastructure development, solid minerals and industry". The CBN has stressed the role of deposit money banks in the process of translating liquidity injections to greater lending to pro-growth sectors.
While this may help spur economic activity to some degree, IHS views this as an indirect means of rationing foreign exchange. Indeed, a Bloomberg report of 19 November stated that the CBN informed commercial lenders in mid-November of its intent to make available fewer US dollars to the market as it seeks to conserve its dwindling foreign reserves.
The CBN has typically received about USD1 billion a month from crude oil exporters, and intends at most to sell what it receives on the interbank market to authorised banks and currency dealers. It has repeatedly stated that it will not change its current currency-trading restrictions or exchange rate policies, and has ruled out another devaluation of the naira.
(source: Africa business in brief)