The policy normalization narrative across the global economy continued to garner pace in the past week as several monetary policy authorities continued or began to hike rates while communicating plans to initiate quantitative tightening. Reiterating the reasons for the hike, inflationary pressures continue to surge to record levels underpinned first by demand-driven factors due to fallout of pandemic stimulus (monetary & fiscal). In addition, cost-push factors such as surge in energy cost, food items, and metals prices (spearheaded by the geopolitical tension in Eastern Europe and export controls by a few key exporters), have contributed to the surge in inflation. Lastly, while supply chain disruptions appeared to gradually ease earlier in the year, the problems are resurfacing after Russia’s invasion of Ukraine and renewed Covid-19 outbreak in China. As a result, demand continues to outpace supply.

In addition to surging inflation, labour markets (particularly in the US) continue to remain strong while economic growth has remained sturdy across the global economy. As a result, it has not been surprising to see the rounds of hawkish monetary policies from policymakers across the globe. In the latest round, the US Fed raised its benchmark interest rate by 0.5%, its highest hike in over two decades. Similarly, other monetary authorities like the Bank of England (+100bps), Reserve Bank of Australlia (+25bps), Reserve Bank of India (+40bps), Banco Central Do Brasil (+100bps), and Central Bank of Chile (+125bps), all opted to adopt a hawkish tone in their last meetings in May.

Looking ahead, we expect a sustained hawkish stance across major central banks in advanced and emerging economies, with the current trajectory of global inflationary pressure remaining a significant driver. In Nigeria, we consider the next Monetary Policy Committee (MPC) meeting an interesting one to watch. The CBN’s decision would be based on expected inflation data for April as well as Q1-2022 GDP growth numbers. However, we expect the CBN’s “wait and see” approach to be tested as other countries continue to hike rates while inflation continues to surge. Also, the uncertainty around the position of the CBN governor will be critical to watch given his preference for a “pro-growth” approach.