At its final meeting of the year, the Monetary Policy Committee (MPC) opted to keep the Monetary Policy Rate (MPR) unchanged at 27.0%, following the 50bps reduction at the September meeting. The hold signals the Committee’s continued commitment to a restrictive policy stance as it seeks to reinforce the recent disinflation trend. Inflation fell for the seventh consecutive month to 16.05% in October from 18.02% in September.
In a notable tweak to its policy framework, the MPC widened the asymmetric corridor around the MPR to +50/–450 basis points, compared with +250/–250 basis points previously, an adjustment that introduces added flexibility in liquidity management. All other parameters were retained, including the Cash Reserve Ratio (CRR) at 45% for Deposit Money Banks, 16% for merchant banks, and 75% for non-TSA public deposits, while the liquidity ratio was held at 30%.
A Calibrated Shift: Technical Easing Amid Broader Tightness
Although the decision to leave the MPR unchanged reflects policy continuity, the adjustment to the asymmetric corridor signals a calibrated technical easing embedded within the broader restrictive stance. By lowering the floor of the corridor significantly, the effective rate on the Standing Deposit Facility (SDF) drops from 24.5% to 22.5%, making it less attractive for banks to place excess liquidity with the CBN.
The intent, in part, is to prevent over-tightening in the financial system by:
In essence, the corridor adjustment provides operational space to manage liquidity without undermining the disinflation trajectory.
Implications for the Banking Sector
The widened corridor may influence bank behaviour in several ways. With a lower return on the SDF, banks may increasingly seek higher-yielding alternatives, including interbank lending or selective credit extension to corporates. However, the prospect of stronger risk appetite may remain tempered by elevated interest rates and tight CRR conditions, which continue to constrain available loanable funds.
Macro and Market-Level Impact
From a macroeconomic perspective, the MPC’s decision reflects an attempt to strike a delicate balance: sustaining disinflation while avoiding a scenario where monetary conditions become excessively restrictive in a slowing economy. The corridor adjustment provides a pathway for modest easing in the future should inflation continue to decelerate, but without sending premature signals to financial markets.
For investors, the move reinforces the CBN’s commitment to price stability, yet introduces a nuanced shift toward policy flexibility. Market yields are likely to remain at current levels, but the adjustment may moderate extreme upward pressure on short-term rates.
Conclusion: Tight, But More Flexible
The MPC’s latest decision underscores a tight but calibrated policy posture. The unchanged MPR, high CRR requirements, and firm liquidity constraints reflect the Central Bank’s determination to sustain the disinflation path. At the same time, the widened corridor introduces flexibility, allowing the CBN to manage liquidity more efficiently and reduce the risk of unintended over-tightening.
If inflation continues to ease and economic activity remains soft, the corridor shift may serve as a precursor to more meaningful easing in subsequent meetings. For now, monetary policy remains firmly on the side of caution but with greater room to navigate evolving macroeconomic conditions.