Again, CBN Raises MPR On Inflation Concerns, Applauds NPL Drop

The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC), on Tuesday rose from its regular meeting, the fifth for the year, voting unanimously to raise the benchmark Monetary Policy Rate (MPR) for the third consecutive time, amid concerns over the surging inflationary pressure.

Specifically, the MPC voted to raise the MPR to 15.5%; retain the asymmetric corridor of +100/-700 basis points around the MPR; increase the CRR to a minimum of 32.5%; while retaining the Liquidity Ratio at 30%.

In all, 10 members voted to raise the MPR by 150 basis points, while one member each opted for a 100 and 50 basis points respectively, just as 10 members voted to increase the Cash Reserve Ratio (CRR) by 500 basis points, while two Members voted for 750bps.

It was not all bad news, as the committee noted an improvement in risk management among the country’s banks, as shown in the drop in Non-Performing Loans (NPL) ratio to 4.8% in August 2022, below the regulatory 5.0% mark in June 2022.

According to the communique signed by the chairman, and Governor of the CBN, Godwin Emefiele, the committee reasoned “that given the primacy of its price and monetary stability mandate, it was expedient that significant focus must be given to taming inflation.”

The committee noted “that within a four-month period, inflation had accelerated aggressively by 280bps from 17.71% in May 2022 to 20.52% in August 2022.”

“Members deliberated on the impact of the widening margin between the current policy rate of 14% and the inflation rate of 20.52%. At this Meeting, the option to loosen the policy rate was not considered as this would be gravely detrimental to reining-in inflation. The Committee thus, agreed unanimously to raise the policy rate to narrow the negative real interest rate gap and rein-in inflation.”

In Nigeria, the committee noted that output growth had been sustained due to the combination of development finance interventions by the CBN and fiscal stimulus by the Federal Government.

“Members noted that in the last three years, the CBN has injected over N9tr into the economy, in addition to offering two-year moratorium for 10-year long-term loan facilities. The committee believe that these interventions have significantly helped engendered growth. However, in light of the persisting pressures on inflation, the committee encouraged the bank maintain a close watch on the inflationary implications of the interventions.

Still on the NPL improvement, the committee reiterating its call on the CBN “to sustain its tight prudential regime, to ensure that the NPL ratio is kept below its 5 0 per cent prudential benchmark.”

The MPC also noted the bearish performance of the NGX Exchange, as shown in the fall in All-Share Index (ASI) to 49,836.51 index points on August 31, 2022, from 51,817.59 index points on June 30, 2022; while the market capitalization also fell to ₦26.88tr, from ₦27.94tr. This followed the sustained profit taking and sell-off by investors rebalancing their portfolios in favour of higher yields in the fixed income market.