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NIGERIA MONETARY POLICY COMMITTEE - MPC breaks dawn with a 100bps hike

In its first meeting of the year, the Monetary Policy Committee (MPC) decided to raise the Monetary Policy Rate (MPR) by 100bps to 17.50%. Seven of the twelve members present voted in favour of a 100bps hike, four voted for a 50bps hike, and one voted for a 25bps hike. All other variables were kept constant.

Global risks deepen the CBN’s hawkish posture
Going into 2023, the Committee highlighted 4 global risks, including (i) uncertainties over the Ukrainian war, (ii) tight global financial conditions, (iii) the pandemic’s resurgence, and (iv) the risk of further lockdown measures in China. The full resumption of economic activity in China is also expected to add demand pressure to the commodity and energy markets. Additionally, uncertainty over Russia's commitments in the Black Sea grain deal (which helped to cool food prices in the latter half of 2022) has raised medium-term inflation expectations. The Committee noted that while inflation in emerging economies is expected to moderate marginally in 2023, it could remain elevated due to expensive grains, high energy costs, and exchange rate passthroughs. Furthermore, major central banks are expected to maintain their hawkish stance as inflation remains above the desired targets.

Domestically, the Committee acknowledged the slight moderation in headline inflation (Dec’22: 21.34% y/y, Nov’22: 21.47% y/y). On a month-on- month basis, however, inflation accelerated primarily due to festive demand. The committee noted that Nigeria’s inflation remains among the highest in the world at over 20%.

In making a policy decision, the Committee, though delighted in the moderation in inflation, felt the marginal dip in inflation was not enough to alter its policy stance. Loosening was not an option as this could alter the inflationary trend. On the other hand, a hold decision could signal weak confidence in its prevailing policy stance at taming inflation. As a result, the Committee resolved to tighten its monetary policy rate by 100 basis points.