Nigeria's central bank cut its Monetary Policy Rate (MPR) by 200 basis points to 11.0 percent and the Cash Reserve Requirement (CRR) by 500 basis points to 20.0 percent in light of "the weakening fundamentals of the economy, particularly the low output growth, rising unemployment and the uncertainty of the global economic environment."
It is the first rate cut by the Central Bank of Nigeria (CBN) this year and 8 of 10 members of the monetary policy committee voted for the rate cut while two voted to keep it steady. Seven members voted to cut the CRR while three voted to retain it.
Eight MPC members also voted to change the interest rate corridor to an assymetric plus 2 percent/minus 7 percent while 2 members wanted to retain the symmetric corridor of plus/minus 2 percentage points around the policy rate.
Concerned about a rise in Nigeria's unemployment rate to 8.2 percent in the second quarter from 7.5 percent in the first quarter, the central bank evaluated various options for funneling credit to growth sectors and emphasized that the liquidity released by a reduction in the reserve requirement "will only be released to the banks that are willing to channel it to employment generating activities in the economy, such as agriculture, infrastructure development, solid minerals and industry."
A drop in Nigeria's inflation rate in October to 9.3 percent from 9.4 percent in September "provided some room for monetary easing to support output in the short to medium term," CBN said.
However, the central bank added that it would continue to monitor developments around the naira's exchange rate, interest rates and consumer prices, underscoring that close coordination between monetary and fiscal policy was imperative to improve growth in a sustainable manner.
The naira tumbled from November last year to March when the central bank imposed foreign currency controls on Africa's leading crude oil producer to preserve foreign reserves.
Since early March, the central bank has adjusted its exchange rate peg several times with the naira quoted at 199 to the U.S. dollar today compared with 182.5 at the end of 2014 for a depreciation this year of 8.3 percent.
Nigeria's official reserves rose to US$30.31 billion as of Nov. 20 from $29.85 billion end-September, the central bank said.
