The maiden MPC meeting of the Central Bank of Nigeria, CBN, for 2022 ended yesterday, maintaining all parameters. This according to the CBN was geared towards supporting Economic Growth
Given the peculiarity of Nigeria’s problem of fuel and diesel scarcity, which exacerbated the core inflation beyond the economic quagmire aggravated by the Russia-Ukraine crisis, six of the ten Monetary Policy Committee members voted to maintain the status quo (Monetary Policy Rates (MPR): 11.50%, Asymmetric corridor around the MPR: +100/-700bps, Cash Reserve Ratio: 27.50% and Liquidity Ratio: 30.00%).
Having to deal with the policy dilemma of managing inflation and economic growth despite significant changes in relevant macroeconomic variables since the last MPC meeting in Jan’22 as the headline inflation reversed the moderation recorded in Jan’22 to inch by 10bps to 15.70%, Brent futures spiked by 22.37% from $88.20/bl on the 25th January to $107.93/bl last week; local crude oil production fell by 10.08% from 1.40mpd in January 2022 to 1.26mbp in February 2022; the exchange rate of the 1.26mbpd in February 2022; the exchange rate of the Naira on the I&E FX window fell by 17bps from $1/416.33 to $/416.50 and the position of our FX reserves declined by US$ 548.27 million from $ 40.21 billion on the 25th January 2022 to $39.67 billion on the 18th March 2022, as the apex bank continues to tap into the nation’s buffers to support the Naira.
In our view, the Committee’s decision to leave all key parameters constant is appropriate as an aggressive stance would hamper growth and reverse previous output gains while loosening rates might worsen inflationary pressures and capital flows. However, given the rising inflationary pressures across the globe and in SSA economies, and the decision of both global and African monetary authorities (the U.S. FED, Bank of England, Bank of Ghana, Central Bank of Egypt, etc.) to hike rates, this could to a large extent, influence the CBN monetary decision in their next meeting as the Nigerian economy also faces similar inflationary challenges.
In the next meeting, the Committee will continue to monitor global trends and our peculiar macro variables vis-a-vis its continuous drive to spur economic growth amidst taming inflation. If the current economic trajectory persists, the CBN will likely opt for a rate hike.