November 23, 2022/United Capital Research
Yesterday, the Monetary Policy Committee (MPC) concluded its last meeting of the year 2022. In line with our expectations, the chairman announced a 100bps hike in the country’s Monetary Policy Rate (MPR), the fourth (4th) consecutive hike in 2022, bringing total rate hikes for the year to +500bps, and the MPR at 16.5%. This decision was supported by eight (8) members of the committee, with the remaining two (2) leaning toward a 50bps hike. The MPC also voted to retain Cash Reserve Ratio (CRR), Asymmetric corridor, and liquidity ratio at 32.5%, +100/-700 basis points around the MPR, and 30.0%, respectively.
The decision of the committee comes despite the observed m/m disinflation in the last three (3) months. Nigeria’s m/m inflation rate began to descend in Aug-22, declining by a mere 5bps to print at 1.77%, from its Jul-22 print of 1.82%. The disinflation was sustained in Sep-22 and Oct-22, with m/m inflation printing at 1.36% and 1.24% respectively, bringing the total m/m decline to 58bps. At the meeting, the governor cited premature, the idea of tilting toward a HOLD stance, reiterating the need to combat elevated inflation and attract further investment inflows from FPIs amid hawkish stances across major central banks. For context, the country’s y/y Inflation rate has been on the rise since Feb-22, climbing for the eighth consecutive month to print 21.09% in Oct-22, 5.5ppts higher than Jan-22 print of 15.63%, albeit largely attributable to the economic ripples from the Russia-Ukraine crisis.
The MPC echoed its commitment to address the issue of elevated inflationary pressure in the Nigerian economy. However, we believe a sustained m/m disinflation will present a reasonable argument for members of the committee to tilt toward a HOLD in the near future. That said, economic growth outcomes and monetary policy decisions in peer countries and advanced economies will remain critical focus points. For the fixed-income markets, we expect an uptick in the yield environment, affecting the entire yield curve (money market & bonds). For the equities, we expect the hike to further fuel the bear market as investors continue to favour fixed-income market, and shun equities.
