Nigeria March MPC: Price stability gets priority over growth

At the second MPC meeting of 2016, the Committee decided to tighten monetary policy against market consensus for a HOLD decision. The MPC raised the Monetary Policy Rate (MPR) by 100bps to 12% with the asymmetric corridor adjusted from +2% and -7% to +2% and -5%, raised the Cash Reserve Requirement (CRR) of banks by 250bps from 20% to 22.5% and retained Liquidity Ratio at 30%. In his speech, the CBN Governor said the balance of risk is tilted against price stability, thus the need to tighten, reflecting a change in policy direction. This outcome suggests that the MPC must have been very concerned with the sharp rise in inflation in the month of February to 11.4% (January: 9.6%). Whilst there was more rhetoric around the currency at this meeting, the now too familiar phrase - “we are fine tuning the foreign exchange framework” - resounded even louder at this meeting. We expect the fixed income market to reprice yields higher to reflect both the monetary policy tightening and delayed reaction to inflation which had thrown interest rates into negative real return.