- At yesterday’s MPC meeting, the authorities further raised the Monetary Policy Rate (MPR) by 100bps to 14.0% from 13.0%. The major consideration was the faster rise in inflation despite a prior 150bps hike.
- The further rise in the MPR, if it translates to an increase in market rates will narrow the interest rate gap and make Naira bonds more attractive, which may be negative for the stock market. The NGX ASI, declined by 0.02%
yesterday when the news broke. - We retain our view that a continuous hike in rate will likely constrain the country’s fragile growth while achieving very little in terms of combating inflation and attracting foreign inflows.
In our last MPC review note in May 2022, we noted that the direction of the MPR at the next MPC meeting in July would highly depend on the turn of events in the local and global space. Since our update, pressure on consumer prices have remained unrelenting as the headline inflation has risen at a faster pace.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unanimously raised the MPR from 13.0% to 14.0%, the second consecutive hike and a cumulative 250bps increase within three months.
With the current narrative on inflation, the Committee was of the view that neither holding nor loosening the policy parameters was an option, given the impact of the rising inflationary pressures which may begin to erode the moderate gains achieved in improving consumer purchasing power.
According to the committee, a hold stance would mean that the CBN was not responding sufficiently to the global and domestic price developments.
In their view, the decision to tighten signals strong determination by the bank to address its price stability mandate and portray the MPC’s sensitivity to the impact of inflation on vulnerable households.
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