The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted to raise the Monetary Policy Rate (MPR) significantly by 400bps to 22.75% at its first meeting in 2024, higher than market watchers expectation of 150bps.
Thus, bringing the MPR to its highest level ever to 22.75%. Notably, the meeting reflects the committee’s commitment to ensuring price stability and managing inflation expectations in the near term.
Furthermore, the committee voted to increase the asymmetric corridor to +100bps/-700bps (previously: +100bps/-300bps), the Cash Reserve Requirement (CRR) to 45.0% (previously: 32.5%) and retained the Liquidity ratio at 30.0%.
On domestic growth, as expected, the committee welcomed the sustained positive GDP growth trajectory in fourth quarter of 2023, and highlighted the resurgence in the oil sector GDP growth due to a higher crude oil production as well as the improvement in the non-oil sector amid high inflationary pressures.
Despite the economic headwinds, the CBN projects the economy to grow by +3.38% in 2024, higher than the IMF’s forecast of 3.0%, but lower than the federal government projection of 3.88%.
On Inflation, the MPC noted the sustained increase in domestic prices of both components in food and non-food items and attributed the upward pressure to the increased pass-through effect of the exchange rate depreciation, rising cost of energy, large fiscal deficit, and heightened insecurity in the food-belt region.
Notably, the committee pointed out that inflation risks remain elevated. Hence, domestic prices are expected to remain elevated over the short term before the disinflationary process sets in.
On foreign exchange, the MPC noted the various distortions in the foreign exchange X market and welcomed the ongoing reforms in the forex market, which include (1) unification of the foreign exchange markets, (2) promotion of the “willing buyer, willing seller” model, (3) removal of all limits on International Money Transfer Operators (IMTO) remittances, (4) introduction of a two-way quote system, and (5) broad reforms in the BDC segment of the market, and expects these changes to restore stability, enhance transparency, boost investor confidence and promote price discovery in the NAFEM market.