The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted to increase the Monetary Policy Rate (MPR) further by 25bps to 18.75% at its July policy meeting. In addition, the Committee voted to narrow the asymmetric corridor to +100/-300bps around the MPR (previously: +100/-700bps) while leaving other policy parameters unchanged; Cash Reserve Requirement (CRR) at 32.5% and Liquidity ratio at 30.0%. The voting range was narrow among members, suggesting a likely pressure on the Committee to halt their interest rate increases in the near term. Precisely, six members voted for an increase in the MPR, while the remaining five voted to keep the MPR unchanged. Of the six members that voted for an increase, four voted to raise the MPR by 25bps, while two voted for a 50bps hike.
On domestic growth: Although the MPC acknowledge the moderate domestic growth in Q1-23 relative to Q4-22, members attributed the sustained positive performance since exiting the COVID-19-induced recession to the sustained growth in the services and industry sectors, supported by broad-based measures by both the monetary and fiscal authorities. Like the prior meeting, the Committee expects real GDP to continue its moderate recovery over the rest of the year as legacy headwinds linger. Hence, the CBN projects the economy to grow by 2.66% y/y in 2023E (Cordros’ estimate: 2.92% y/y).
On Inflation: The Committee noted the rise in inflationary pressures to 22.79% y/y in June (May: 22.41% y/y), driven by moderate increases in food and core inflation. In addition, members highlighted key factors to stoke upward price pressures in the near term, including (1) upward adjustments to PMS prices in line with market realities and (2) lingering FX reforms. Thus, the Committee called for greater collaboration between the CBN and fiscal authorities to tame rising consumer price pressures.
On foreign exchange: The MPC acknowledged the CBN’s recent policies to boost FX flows, convinced that the policies will increase market transparency and encourage more foreign capital inflows. Therefore, the Committee urged the CBN to leverage its FX policies to boost diaspora remittances, helping to moderate exchange rate pressures.
