The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate (MPR) by 50 basis points, from 18 percent to 18.5 percent, the third time in one year. Recall that the CBN had raised MPR from 16.5% to 17.5% in January, then to 18% in March 2023.
This was contained in a communique by the Apex Bank after a 2-day MPC meeting that ended May 24th, 2023.
Emefiele (CBN Governor) said the committee members voted to hike the rate by 50 basis points to 18.5 percent, retain the asymmetric corridor at +100 and -700 basis points around the MPR, retain the cash reserve ratio (CRR) at 32.5 percent and liquidity ratio at 30 percent.
Despite the drop in the Gross Domestic Product (GDP) to 2.31 percent year-on-year, during the first quarter of 2023 compared with 3.11 percent during the first quarter of 2022, members unanimously resolved to tighten rates further in order to tame the rise in inflation, which currently stood at 22.22%.
The CBN boss said although the continued rise in headline inflation remained a significant problem confronting the economy, other macroeconomic variables are moving in the right direction despite observed headwinds.
What does it mean for a consumer?
The policy tilt towards discouraging further build-up in aggregate demand, in the face of declining output growth; thereby moderating demand-pull inflation.
Would this action affect investors?
Amongst the effects of rate hikes is an increased cost of funds. Simply put, a rise in interest rate increases finance costs, which reduces profits, hence EPS and dividends for shareholders.
We suggest profitable and safe haven stocks, as well as likely exposed stocks, in the face of rising interest rates in our subsequent releases.