CBN Raises MPR by 150 basis points to 26.25% from 24.75%, Retains others
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has CBN raised MPR by 150 basis points to 26.25% from 24.75%, and retained others
The decisions took place after its 295th meeting on May 20th and 21st, 2024, to review recent economic and financial developments and assess risks to the outlook.
The Committee’s decisions are as follows:
- Raise the MPR by 150 basis points to 26.25% from 24.75%.
- Retain the asymmetric corridor around the MPR to +100/-300 basis points
- Retain the Cash Reserve Ratio of Deposit Money Banks at 45%.
- Retain the Liquidity Ratio at 30%
Considerations
The key focus of the MPC at this meeting remained to achieve price stability by effectively using the tools available to the monetary authority to rein in inflation.
Members observed that while year-on-year headline inflation in April 2024 rose moderately, the month-on-month headline, food and core measures declined significantly. This follows a decline (month-on-month) of headline and food measures in March 2024, suggesting that the Bank’s recent tight monetary policy stance is beginning to yield the desired outcomes.
The MPC, however, noted that the inflationary pressure continues to be mainly driven by food inflation. The Committee thus reiterated several challenges confronting the effective moderation of food inflation including the rising cost of transportation of farm produce, infrastructure-related constraints along the distribution network line, security challenges in some food-producing areas, and exchange rate pass-through to domestic prices for imported food items. The MPC urged that more be done to address the security of farming communities and guarantee improved food production in these areas.
Members further observed the recent volatility in the foreign exchange market, attributing this to seasonal demand, reflecting the interplay between demand and supply in a freely functioning market system. The Committee also noted the marginal increase in the external reserve balance between March and April 2024 and urged the Bank to sustain its focus on accretion to reserves. The MPC commended the Bank for the recent approval of fourteen (14) international Money Transfer operators (IMTOs) licenses. This is expected to improve competition and lower the cost of transactions, thus attracting more remittances through formal channels.
The Committee noted with satisfaction that the banking system remains safe, sound, and stable despite the headwinds confronting the economy. It commended the recent recapitalisation initiative and urged the management to sustain its regulatory oversight to ensure the continued stability of the banking system.
Members focused on the best policy approach to continue guiding the economy towards achieving an overall macroeconomic balance. At this meeting, the Committee was thus faced with the option of either continuing with policy tightening or holding to observe the impact of previous rate hikes. Following an extensive review of risks and the near-term inflation outlook, the balance of risks suggests further tightening policy to build on the benefits of previous rate hikes.
Key Developments in the Domestic and Global Economies
Domestic headline inflation rose to 33.69% in April 2024, from 33.20% in March, driven by food and core components. On a month-on-month basis, however, headline inflation declined significantly to 2.29% in April 2024, from 3.02% in March. The food and core components declined to 2.50% and 2.20% from 3.62% and 2.54%, respectively, in the same period. According to the National Bureau of Statistics, real GDP grew by 3.46% in the fourth quarter of 2023, compared with 2.54% in the third quarter, driven by both the oil and non-oil sectors. The recent Purchasing Manager’s Index (PMI) suggests that economic activities will continue to expand in 2024. In addition, staff forecasts indicate that the domestic economy will grow by 3.38% in 2024.
According to the IMF, global growth in 2024 and 2025 is projected at 3.2% apiece, while it revised Nigeria’s growth upwards to 3.3% from 3.0% in 2024. The identified headwinds to this projection are the tight financial conditions and broad disruptions to the global supply chain associated with geopolitical tensions and economic fragmentations. While these are feeding directly into a rally in the prices of essential commodities such as grains and oil, global inflation is projected to continue to decelerate in 2024 but could remain above the long-run objectives of advanced economy central banks.
This group of central banks is likely to pause its rate hike cycles in the near term to observe inflation’s trend.
Accordingly, the Committee will continue to monitor developments in the global and domestic economies to guide policy and ensure that inflation expectations are adequately anchored.
All twelve members attended the meeting. The next meeting of the Committee will be held on July 22nd and 23rd, 2024.
