The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unanimously voted to raise the MPR further by 50bps to 27.25% at its September policy meeting making it the fifth consecutive increase in the year.
The decision to tighten further was based on the need to (1) strengthen the recent disinflationary trend and manage inflation expectations given the upside risks to inflation, (2) stabilise the naira, and (3) narrow the negative real rate of return.
At the same time, the Committee voted to raise the Cash Reserve Requirement (CRR) for Deposit Money Banks (DMBs) and Merchants Banks to 50.0% (previous: 45.0%) and 16.0% (previous: 14.0%), respectively, while retaining other parameters the asymmetric corridor around the MPR at +500bps/-100bps and the liquidity ratio at 30.0%.
On Domestic Growth, the MPC acknowledged the improved GDP growth in Q2-24 (3.19% y/y vs Q1-24: 2.98% y/y), driven primarily by solid growth in the oil and non-oil sectors.
Notably, the Committee reviewed its GDP forecast downward marginally to 3.32% for 2024E (Previous: 3.38%) but remains above the IMF growth projection of 3.10%.
On Inflation, the Committee noted the disinflation trend in the headline inflation in recent months, specifically in July (-80bps to 33.40% y/y) and August (-125bps to 32.15% y/y), due to the moderation in food prices, but highlighted the continued increase in core inflation.
The Committee also highlighted the upside risk to inflation in the near term, including increased flooding, insecurity in food-producing areas, and the hike in PMS prices.
Nonetheless, the MPC acknowledged the federal government’s efforts to improve food supplies through the duty-free import window for food commodities.
Additionally, the Committee was optimistic that the domestic supply of refined petroleum products from the Dangote Refinery could potentially moderate transportation costs and its passthrough effect on food prices in the short to medium term.
On Foreign Exchange, the MPC pointed out the unabating demand pressure in the FX market and the recent efforts of the CBN to stabilise the naira.
Furthermore, the Committee highlighted the positive impact of the Dangote Refinery, which potentially reduces FX demand for fuel imports and supports the overall balance of payment. The committee also noted the sustained accretion in the FX reserves in the near-recent weeks.
