The Monetary Policy Committee (MPC) of the Central Bank Of Nigeria (CBN) again voted to raise the Monetary Policy Rate (MPR) by 200bps to 24.75% in March.
Market ànalysts highlights that the committee’s decision to hike the MPR further was hinged on (1) the existing inflationary pressures, (2) the need to anchor inflation expectations, and (3) maintaining the stability of the exchange rate.
Additionally, the MPC narrowed the asymmetric corridor to +100bps/-300bps around the MPR (Previously: +100bps/-700bps) and adjusted the Cash Reserve Requirement (CRR) for merchant banks to 14.0% (Previously: 10.0%) whilst retaining the CRR for Deposit Money Banks (DMBs) at 45.0%.
The Committee also retained the liquidity ratio at 30.0%. On domestic growth, the MPC anticipates that domestic economic growth will remain positive despite high inflationary pressures and weak consumer demand.
Notably, the MPC maintained its average projected growth rate of 3.38% for 2024, higher than our forecast of 2.92%. Similarly, the CBN’s GDP forecast exceeds the International Monetary Fund’s (IMF) projection of 3.0% but lower than the Federal Government’s projection of 3.88%.
On Inflation, the MPC observed the persistent increase in price pressures, attributing this trend to the substantial pass-through of the exchange rate to domestic prices, elevated logistics and energy costs, ongoing insecurity in food-producing regions, and significant infrastructure deficiencies.
The Committee anticipates that these upward price pressures will persist in the short term before moderating towards the second half of the year.
On foreign exchange, the committee highlighted the stability of the naira after the previous MPC meeting and attributed it to the market reforms, increased CBN intervention and the successful clearance of the FX backlog, which has strengthened confidence and supported liquidity in the FX market.
In addition, the committee noted the increased FX inflow from Foreign Portfolio Investors (FPIs) due to higher yields on fixed-income securities.
Nevertheless, the MPC affirmed its commitment to sustaining its intervention in the FX market to ensure that the naira remains stable while building confidence in the market in the medium term.
