All of the Monetary Policy Committee members voted for an upward review of the Monetary Policy Rate (MPR), given that Nigeria’s headline inflation increased by 16.82% in April 2022 compared to 15.92% in March 2022. The MPR was increased to 13% by 150bps, while the Asymmetric corridor around the MPR, Cash Reserve Ratio (CRR), and Liquidity Ratio (LR) remained unchanged at +100/-700bps, 27.50%, and 30.00%, respectively. Eleven members sat in the meeting, with six members voting to raise the MPR by 150 basis points, four members by 100 basis points, and one member by 50 basis points.
Notably, the Committee decided that the bank’s rates on development finance initiatives should remain at 5% until March 2023 to support the continuous development embarked by the apex bank in the agricultural, manufacturing, healthcare, energy/infrastructure, and services sectors. The bank so far has released the cumulative sum of ₦1.01 trillion, ₦21.23 billion, ₦741.05 billion, ₦106.39 billion, ₦2.01 trillion, and ₦130.49 billion for Anchor Borrowers’ Programme (ABP), Accelerated Agriculture Development Scheme (AADS), Commercial Agriculture Credit Scheme (CACS), Paddy Aggregation Scheme (PAS), Real Sector Support Facility (RSSF), and Healthcare Sectors Intervention Facility (HSIF) respectively.
The Committee’s dilemma is how to rein in inflationary pressures and simultaneously support growth amidst the global economic headwind and the passthrough of the global financial condition in the domestic economy since the last meeting on March 21st, 2022. The inflation rate printed in April’22 is the third consecutive surge in inflation since the beginning of 2022, on the back of a rise in the core and food components to 14.18% and 18.37% in April 2022, 13.91% and 17.20% in March 2022 respectively. The upward trend in the headline inflation is a result of the rally in energy prices, which impacted the epileptic supply of Premium Motor Spirit (PMS), and the high cost of Automotive Gas Oil (AGO), primarily used in transportation and production.
The price of the Brent crude remained elevated, trading above $100 p/b throughout the period between the last MPC meeting on March 21st and the recent one on May 23rd and 24th. Despite the elevated oil prices, external reserves dipped further by $93 million from $39.58 billion on March 21st,2022, to $38.65 billion on May 23rd,2022. Similarly, the Naira exchange rate against the dollar in the I&E window FX window fell by 99bps from $1/₦416.25 to $1/₦420.33 within the same period as local crude oil production output fell by 40kbpd from 1.24mbpd in March 2022 to 1.20mbpd in April 2022. The apex bank continues to tap into the nation’s buffer to support the Naira. Data from CBN Broad money supply (M3) increased significantly by 6.22% in April 2022 compared with 4.19% in March 2022, driven by strong growth in Net Domestic Assets (NDA) by 11.86% in April 2022 from 8.82% in March 2022.
The Committee’s decision to raise the MPR to rein in inflationary pressures and reduce capital outflows from the economy has to a large extent, been influenced by the hawkish stance of both developed and emerging markets. While the rate hike would help curtail the increasing money supply, it is pertinent to note that external factors and other structural constraints drove the rising inflationary pressures recorded in the previous months, which rate hikes may not effectively address. With the depleting foreign capital inflows on the back of the inefficient multiple exchange rates regime to foreign investors and the current inflation rate, the CBN needs more than the monetary policy tools to incentivize foreign capital inflows and moderate inflation, most especially as electioneering activities heat up.