TheCable

For the second time in four months, the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) decided on Tuesday to hold benchmark interest rates at record high of 14 percent.

Godwin Emefiele, governor of the bank, announced that the committee also decided to keep cash reserve ratio (CRR) and liquidity ratio at 22.5 percent and 30 percent respectively.

He said the 10 members present at the meeting decided unanimously to keep the asymmetric corridor at +200 and +500 basis points.

The CBN took this decision in July 2016, and has since decided to maintain all rates through 2016 and for the early portions of 2017.

Lukman Otunuga, market analyst at FXTM, said “the central bank has decided to maintain a cautious approach amid the ongoing instability”.

“The fact that the nation is currently entangled in a fierce battle with cost-push inflation has created unease with concerns already heightened over the CBN running low on ammunition. It must be understood that the cause behind the incessant rise in consumer prices is the disparity between the official and black market exchange.

“Many producers in Nigeria do not have the ability to purchase the Naira on the official exchange and are forced to use the black market which inevitably will make the products more expensive.

“The additional costs are reflected in prices which punish consumers and spark higher inflation levels. While most have suggested that the black market should not exist, it is the simple fundamentals of supply and demand that fuels this exchange.

“There is a possibility of the Central Bank of Nigeria accepting that the black market represents the true value of the Naira which should encourage further devaluations on the official exchange this year in a bid to reclaim stability.

“Although major financial institutions such as the IMF and World Bank have predicted that Nigeria may exit a recession this year, the nation still remains exposed to both external and internal risks which should keep the CBN on high alert.”