CBN MPC Raises Policy Rates to 27.50%: Continues Hawkish Policy as Inflation Rises to 33.88% in October 2024

This Commentary includes: 

• November 2024 MPC Meeting Outcomes
• Considerations for MPR Hike in October 2024
• Reactions Since MPC Rate Hike in September 2024
• Closing Thoughts: Lessons from a Hawkish 2024

November 2024 MPC Meeting -Policy Decisions

The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) retained its hawkish position by unanimously increasing interest rates by 25bps at its last meeting for 2024. While the MPC’s decision aligns with

 Proshare Analysts’ projections, it deviates from our key recommendation of a hold on policy rates (see Table 1 below).

Table 1:

Considerations for MPR Hike in October 2024

Proshare Analysts had previously stated the likelihood of the emergence of a rate hike like those observed in September 2024. At the October 2024 meeting, the MPC noted the following considerations:

• Increased concern following the resurgence of all three measures of inflation of price levels on a month-on-month basis.
• Rising energy costs driving core inflation, leaving price levels elevated.
• Rising PMS costs driving core inflation, leaving price levels elevated.
• Weakened exchange rate positions driven by high pressures.
• Improvement in the external sector, reflected by the increase in the current account surplus, enhanced remittance and capital inflows.

Reactions Since MPC Rate Hike in September 2024

Following the November 2024 interest rate increase, the Nigerian stock exchange (NGX) posted a bullish performance, with the market All Shares Index (ASI) rising marginally by 0.01%. Analysts believe the market largely expected the CBN’s hawkish outlook with a probable 25bps rate increase. However, economists observed mixed outcomes for key economic indicators between the rate hike in September and October 2024 (see Table 2 below).

Table 2: 

Closing Thoughts: Lessons from a Season of Hawkishness

Broadly aligning with market expectations, the CBN hiked its policy rate by 25bps. According to Prof. Uche Uwaleke, “the marginal rate increase is a signal that the CBN will completely pause or apply the brake beginning from the first quarter of next year…this has to happen to stem the rising cost of funds and negative impact on credit access so that small businesses, in particular, can breathe.” 

Notably, the CBN’s orthodox monetary policy and aggressive inflation-targeting unveils a few lessons:

• Regrettably, five consecutive interest rate hikes (875bps) have failed t o tame Nigeria’s inflation growth.
• The Nigerian economy has not supported an orthodox reaction to monetary policy. Growth has trended upwards, climbing to 3.46% in Q3 2024, and unemployment has fallen to 4.3%.
• Monetary Policy Rate hikes have significantly increased foreign portfolio inflows to N344.30bn year-to-date (YTD) in 2024 from N122.55bn (YTD) in 2023. However, combining FDI’s stock increase and reserve buildup will be a sustainable growth and FX management option.
• Banking sector performance and credit activities have gained mainly from interest income.
• The government has a high reliance on the debt market, where bonds have enjoyed high yields.
• Borrowing costs remained elevated, impacting the cost of operations.
• Key structural drivers of inflation have persisted, and unless addressed, the efforts of the CBN will fail to yield the desired results. 
• The rebasing of the gross domestic product (GDP) in 2025 will have illusory outcomes for inflation; however, the real impact will be seen in the reduced purchasing power of households. Adapted from the PROSHARE