Members of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC), on Tuesday rose from their meeting, voting to raise the benchmark Monetary Policy Rate (MPR) by 100 basis points to 14.0%.
A breakdown of the voting pattern shows that while six of the 11 participating members voted to raise the MPR by 100 basis points; three of them opted for 50bps increase; and one each opted for 150bps; and 75bps.
This is the first time perhaps the CBN is raising rates at two successive meetings in response to the global challenges, particularly the ongoing war between Russia and Ukraine, and has continued to negatively impact the domestic economy, among others factors.
Recall that on Friday, the National Bureau of Statistics (NBS) released Nigeria’s Consumer Price Index for the month of June, showing that inflation jumped 89 basis points up to a five-year high at 18.60% year-on-year, from the 17.71% reported in May.
Also at the meeting, committee voted to retain the Cash Reserve Requirement (CRR) at 27.5%, liquidity ratio at 30.0% and asymmetric corridor around the MPR at +100bps/-700bps.
The committee, according to a communique issued at the end of the meeting, signed by Godwin Emefiele, its chairman and Governor of the CBN, “expressed with concern the continued aggressive movement in inflation, even after the rate hike at its last meeting, and expressed its unrelenting resolve to restore price stability while providing the necessary support to strengthen the fragile recovery.”
To address “the balance of policy objectives and developments in the global and domestic environment, the Committee resolved that the most rational policy option would be to further strengthen its tightening stance in order to effectively curtail the unabated rising trend of inflation.”
Members, the communique continued, “were conscious of the fact that output growth remained fragile, however, not curtailing inflation now could erode the moderate gains achieved in improving consumer purchasing power and thus worsen poverty level for the vulnerable populace. To ensure that output still remains in focus, the MPC advised the bank’s Management to continue to use its development finance tools to support the agricultural and manufacturing sectors.”
The committee noted that the CBN is addressing the demand factors heightening inflationary pressures with the relevant direct and indirect instruments, besides providing interventions to address supply side factors, urging the fiscal authorities to address the structural challenges impeding food production in the country and seek a long-term solution to the pricing between the pricing and supply of PMS.
Reacting to the MPC decision, analysts at Cordros Securities Limited, a Lagos-based investment banking group, said it went against their expectation that the rates will be kept “unchanged to allow previous policy actions to fully permeate the economy while using the development finance initiatives to ease supply constraints…”
Should the global inflationary pressures persist and recession is avoided in key economies, Cordros Securities expects global central banks to march on with the aggressive rate hikes to combat the unabating inflationary pressures, following which the MPC could “raise the MPR by 50bps at the September policy meeting to limit external pressures in the face of rising yields in advanced economies.