Nigeria: CBN’s MPC raises policy rate by 50bps to 18%

The Monetary Policy Committee of the Central Bank of Nigeria rose from its 2nd meeting of the year and unanimously voted to raise Monetary Policy Rate (MPR) further by 50bps to 18.00% with other policy parameters unchanged.

Other parameters retained were the asymmetric corridor of +100/-700 basis points around the MPR; the Cash Reserve Ration (CRR) at 32.50%; and the Liquidity Ratio at 30%.

At the meeting, 10 members voted for a 50bps hike in rates, 1 voted for 25bps rate increase, 1 voted for a hold, and all voted for other parameters remaining at status quo.

At the meeting, the MPC focused its attention not only on the inflationary trends in major economies around the world but also on the reported impact of rate hikes on the stability of the global financial system.

However, the MPC noted that despite the cumulative hikes of 600bps over the past year, the Nigerian financial system remains resilient, as evidenced by the strong financial soundness indicators of banks due to the stringent prudential guidelines placed by the Apex Bank.

Having concluded that Nigeria’s banking system remains insulated from the contagion effect of the banking crisis in the U.S. and some other advanced economies, the MPC gave thoughtful consideration to the prevalent and potential factors that could continue to stoke inflationary pressures going forward, the primary one being the ongoing discourse as regards fuel subsidy removal and the attendant effect this would have on general prices, adding to the continued impact of foreign exchange pressures.

This compelled the committee to adjust the MPR upward, albeit at a slower pace of 50bps. A loosening stance was not considered as this would jeopardize the gains achieved so far from previous rate hikes.