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NIGERIA MONETARY POLICY COMMITTEE - MPC rounds up the year with a 100bps hike

The Monetary Policy Committee (MPC) decided to raise the Monetary Policy Rate (MPR) by 100bps to 16.50% in its final meeting of the year. Of the 11 members present, 9 voted in favour of a 100bps hike while 2 members preferred a 50bps hike. Other parameters were held constant.

Global uncertainties necessitated tightening    
Global economic conditions are deteriorating on the back of the ongoing war in Ukraine, supply chain disruptions, and tighter financial conditions. With the war in Ukraine showing no signs of abating, the disruption to commodity markets may persist well into 2023. Worse still, the hawkish policy stance of the US Fed combined with the contractionary impact of OPEC+ production cuts have heightened volatility in oil prices, contributing their quota to demand destruction. As a result, the International Monetary Fund (IMF) has had ample cause to downgrade its growth estimates for 2023, as overreaction from central banks to cost-push inflation could hurt growth. This outlook has been felt across global financial markets, with investors dumping stocks for high-yielding fixed-income assets.

On the domestic scene, growth could remain strong despite this global backdrop as the Bank expects Nigeria to grow by 3.30% y/y in 2022 (Vetiva: 3.36% y/y). Nevertheless, the global turmoil has startled consumer prices in the Nigerian economy. While headline inflation continues to trend higher on a year-on-year basis (Oct’22: 21.09% y/y), there has been a consistent decline in month-on-month inflation, an indication that consumer prices are reacting to the Bank’s recent policy rate hikes.