Monetary Policy: MPC Springs a dovish surprise

By March 27, 2019Research

MPC Springs a dovish surprise

The CBN Monetary Policy Committee (MPC) voted to cut the key benchmark interest rate by 50bps to 13.5%, taking the Standing Lending Facility and standing deposit facility to 15.5% and 8.5% respectively. The decision was surprising in that ARM Research and most analysts surveyed by Bloomberg anticipated no change in policy parameters. The MPC also switched its policy stance to ‘easing’ from ‘neutral’, which was a majority decision. What’s more amazing though is the sharp swing in the policy perception within the MPC members. Until yesterday’s meeting, majority of the members expressed caution on exchange rate stability and inflation and advocated for a neutral stance in the last four (4) meetings noting the risk to price and currency stability. Yesterday, 9 out 11 members voted for a rate cut, though only 6 members voted for a 50bps rate cut.

In the justification for a rate cut, the committee expressed satisfaction with the relative stability in the price level and exchange rate, and thus sought to support growth. Particularly, following the calm outcome of the general election together with the recent resurgence of foreign portfolio investment[1] into the country and continued deceleration in inflation reading, the CBN thought it imperative to signal a new direction.

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