The monetary policy committee (MPC) of the Central Bank of Nigeria (CBN) has again retained interest rate at 14 percent, the country’s highest in 10 years. MPC has maintained this decision for 22 consecutive months. In July 2016, the committee raised interest rates to combat rising inflation at that time. Announcing the committee’s decision on Tuesday, May 22, 2018, Godwin Emefiele, CBN governor, said members of the committee considered risks like late approval of 2018 budget, farmers/herdsmen clashes, salary arrears, growing sovereign debt. The CBN governor said that:

“The risks to the outlook include the huge liquidity injection that is expected to arise from the implementation of the proposed 9.12 trillion naira 2018 federal government budget, expenditure towards the 2019 elections, monthly FAAC injection, approval and implementation of the proposed new national minimum wage and the possibility of a supplementary budget to finance this”. “These could impact aggregate demand and put pressure on domestic prices in the remaining months of 2018 and dampen the gains already made by the bank in stabilising prices. “Despite the drop in inflation, the current inflation rate is still above the targeted single digit. The objective of the policy stance, therefore, would be to accelerate the reduction of inflation to single digit to promote economic stability.

“There is need to see how all the components of the gross domestic product would evolve in the second quarter of 2018 in order to gain greater clarity on the direction of monetary policy. “The predominant argument for a hold at this time is to await more clarity on the evolution of key indicators that is the passing of the budget and implementation, economic activity and traction in fiscal policy in 2018. “The committee was convinced that the economy needed a new impetus for increased lending by the banking system and would work with the bank to encourage deposit money banks to adopt innovative ways to accelerate credit growth including a reduction in the policy rates when conditions for such a decision arise.” Emefiele said eight members of the committee voted in favour of maintaining rates, while one member voted in favour of tightening by 50 basis points. Cash reserve ratio (CRR) and liquidity ratio were maintained at 22.5 percent and 30 percent respectively.

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