In line with our expectation, the Monetary Policy Committee (MPC) of the CBN maintained status quo on all policy rates at the meeting which ended the 26th November 2019. It was a unanimous vote that kept the Monetary Policy Rate (MPR) at 13.5%, the asymmetric corridor around the MPR at +200bps/-500bps, Cash Reserve Ratio (CRR) at 22.5% and liquidity ratio at 30%.
In its post-MPC briefing, the CBN noted that the choice of the committee remained limited. Hiking rates, in recognition of increased upside risk to inflation and mounting external sector pressures would further constraint economic growth; while a rate cut is likely to intensify risks to NGN stability resulting in increased capital outflows.
Pressure points highlighted, the MPC opted to retain policy rates, reflecting its desire to sustain the fragile economic recovery through private credit expansion. Private credit growth improved slightly to 13.08%yoy in October from 12.49%yoy in September, while credit to government declined in October to 85.99%yoy from 114.79%yoy in the previous month.
strong pro-growth bias in line with the recent CBN policies to lower interest rates and bolster non-bank domestic liquidity. Through its recent decisions, the CBN clearly revealed its willingness to support the economic recovery by reducing the arbitrage opportunities available to corporate borrowers and shrinking the size of its balance sheet without impacting foreign investors.
Although GDP growth surprised positively in Q3 2019 at 2.28%yoy from 2.12%yoy in Q2, supported by higher oil production and recovery in agriculture, momentum remains fragile and the medium-term outlook is still constrained by persistently weak macroeconomic policy environment and we see little room for the economy to expand above 2.5% in the short-term.