Nigeria rate cut: FX stability and sluggish growth trump sticky inflation

In a surprise move, the Central Bank of Nigeria’s (CBN) monetary policy committee (MPC) has cut the monetary policy rate (MPR) by 50bps to 13.5% from 14%.
The directional move is unsurprising, as fundamental indicators have called for looser monetary conditions, but the timing is somewhat unexpected for two reasons: 

  1. The MPC had kept the policy rate constant for 32 months;

  2. Many believed major policy decisions were unlikely prior to CBN Governor Godwin Emefiele’s forced hiatus period, which begins in April. As we recently noted, there is a growing sense that Emefiele is likely to be replaced in June, which would set the stage for a fresh set of policy reforms. 

Although the persistently high inflation remains a worry for the MPC, the rate has remained largely stable for the much of the past year, ranging between 11.14% and 11.61% yoy – c7% lower than the 18.7% recorded in January 2017, following the devaluation of the naira. The MPC expects a slight increase to 12% over the coming months, but it has become increasingly clear that the lack of economic growth ranks higher on the list of concerns...

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