CBN slashes benchmark rate to 11 percent as economy slows

24 Nov 2015
Chibuike Oguh


Emefiele said the measures became necessary as a result of weak macroeconomic environment and the risk of a recession.

Governor of Central Bank of Nigeria Godwin Emefiele

The Central Bank of Nigeria has slashed its benchmark interest rate to 11 percent from 13 percent as low oil prices have weakened Nigeria’s economic growth over the last three quarters. The apex bank announced this after its Monetary Policy Committee meeting of November 23-24, which ended on Tuesday.

This is the first time the CBN has slashed its benchmark rate (Monetary Policy Rate) since 2009. The new MPR will have a corridor around the benchmark rate of 200 basis points above and 700 bps below. (This means that the CBN can borrow from banks at rates as low as 4 percent and lend to them at rates as high as 13 percent).

Speaking after the MPC meeting, CBN Governor Godwin Emefiele told reporters in Abuja that the central bank also reduced the cash reserve ratio to 20 percent from 25 percent.

Emefiele stated that the latest measures became necessary as a result of weak macroeconomic environment and the risk of a recession amid rising headline inflation.

“What we’ve decided to do at this meeting is that we must stimulate growth . . . in consideration of the weakening fundamentals of the economy, particularly the low output growth, rising unemployment and the uncertainty of the global economic environment,” Emefiele said.

Declining oil prices have caused Nigeria’s economic growth to slow this year to its lowest levels in five years. Nigeria’s GDP grew by just 2.84 percent in the third quarter of 2015, slightly higher than 2.35 percent recorded in the previous quarter, but lower than the 3.96 percent recorded in the first quarter.

Furthermore, Nigeria’s inflation rate crossed the CBN’s upper limit of 9 percent in June this year.

In a statement, CardinalStone Partners Limited, a financial advisory and investment management company said, "The Governor highlighted the fragile macro environment and the risk of a recession as some of the considerations to proactively ease liquidity to support growth. This will however take some time to achieve and thus, our expectation is for liquidity to be channelled into the fixed income market in the immediate term especially as fixed income instruments with the exception of the 91DTM treasury bill offer more attractive yields compared to the Standing Deposit Facility (SDF) rate of 4%.”

Chibuike Oguh is Financial Nigeria's Frontier Markets Analyst

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