The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted by a majority vote to hike the Monetary Policy Rate (MPR) further by 50bps to 18.5% at its May policy meeting.

Thus, the MPR is now at its highest level since November 2002 (18.5%). In terms of voting pattern, 10 members voted to raise the MPR by 50bps while 1 member voted to increase the MPR by 25bps.

In the same vein, the Committee voted to maintain other policy parameters at current levels; the asymmetric corridor around the MPR at +100bps/-700bps, Cash Reserve Requirement (CRR) at 32.5%, and Liquidity ratio at 30.0%.

On domestic growth,While the MPC was concerned about the Q1-23 GDP growth (+2.31% y/y vs Q4-22: +3.52% y/y), it attributed the positive performance to the sustained growth in the services sector, progressive uptrend in economic activities and sustenance of broad-based support by the bank in growth-enhancing sectors.

Like the prior meeting, the Committee expects that real GDP will continue its moderate recovery over the rest of the year as legacy headwinds linger. Hence, the CBN projects the economy to grow by 3.03% y/y in 2023E (Cordros’ estimate: 2.92% y/y).

On Inflation, the Committee acknowledged that headline inflation remains high largely due to a host of non-monetary factors outside the reach of the CBN such as intermittent PMS scarcity, expectations of short-term hikes in PMS prices, and lingering challenges confronting the food supply chain.

Thus, the Committee called on the fiscal authorities to explore other avenues to expand the fiscal safety net and address the urgent need to respond to legacy challenges and emerging shocks impeding the food supply.