CRR to 35%, Steep MPR Hike, What to Expect From Nigeria’s MPC

There is a meaningful chance the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will raise rates steeply today as the apex bank intensifies its fight against inflation that is ravaging Nigerians and disrupting asset prices.

Many economists say the hawkish stance by the regulator is inevitable given a sharp reduction in foreign direct investment (FDI) amid deteriorating external reserves and sluggish economic growth.

It is interesting to note that the central bank head Yemisi Cardoso has been working assiduously to battle currency fluctuation and curb financial illiquidity, but it appears he is behind the cure as the Naira has continued on a free fall, losing 230 percent of its value since last year.

The Monetary Policy Committee (MPC) is scheduled to convene for its first session of the year on February 26th and 27th 2024. The MPC last hiked the monetary policy rates to 18.75 percent last year.

Considering the sustained inflationary pressures and the anticipation of continued uptrend, analysts at Meristem Securities foresee the Committee raising the policy rate by 100bps to 19.75 percent.

Analysts at Meristem Securities anticipate an increase in the Cash Reserve Ratio (CRR) by 250bps to 35.00 percent, with other policy parameters remaining unchanged.

“During the upcoming meeting, we anticipate that the monetary policy committee will focus on several key considerations. These include evaluating the disinflation trends observed in advanced economies and monitoring the measures implemented by global monetary authorities,” said analysts at Meristem Securities.

“Additionally, we expect the committee to assess the deceleration in oil price fluctuations and analyze the potential repercussions of the UK and Japan’s economic downturns on global economic growth,” said the analysts.

In January 2024, the National Bureau of Statistics (NBS) reported that Nigeria experienced its highest headline inflation in 28 years, reaching 29.90 percent year on year (YoY) compared to 28.92 percent and 21.82 percent in December and January 2023, respectively.

The central bank’s hawkish move is expected to keep Open Market Operations (OMO) yields elevated in the first six months of 2024.

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