The Monetary Policy Committee (MPC) of Nigeria's central bank retained its monetary policy stance at its latest meeting held on March 24, saying that its previous decisions needed time for their effects to fully permeate the economy. Thus, the monetary policy rate (MPR) was maintained at 13% after a 100bp bike in November, the cash reserve ratio (CRR) on private sector deposits was held at 20%, the CRR on public sector deposits was maintained at 75%, and the liquidity ratio was held at 30%.

The move was widely expected in view of the uncertainty surrounding the upcoming general elections. A rate hike is, however, possible in the second quarter.

The MPC noted that although inflation remains within the central bank’s 6%-9% target, it is concerned from its recent acceleration – from 8% in December to 8.4% in February. The major risks to inflation include elevated aggregate spending in the run-up to the elections, the likely higher import prices given the weakening local naira currency and possible food supply shocks linked to insurgency and insecurity in some major agricultural zones of the country, it said. However, it hopes that its tight monetary policy stance and some recent administrative measures would help lock-in inflation expectations and further stabilize the naira exchange rate.

The MPC also expressed concern about the outlook for growth, which had moderated due to the effects of low oil prices, naira exchange rate depreciation, and election related concerns. The West African country’s full-year GDP growth accelerated to 6.22% last year from 5.49% in 2013, but it is widely expected to slow this year (IMF: 4.8%, World Bank: 5.5%). Moreover, GDP growth decelerated to 5.94% y/y in Q4 from 6.23% in Q3, as a recovery in the oil sector could not offset a slower growth in non-oil GDP. The MPC attributed the softening of non-oil GDP (to 6.44% in Q4 from 7.51% in Q3) to the spillover effects of low oil prices which negatively impacted agricultural output, trade and services. It said it is optimistic that the situation would improve once elections were successfully conducted with the expected improvement in business confidence.