January 24, 2023/Coronation Research
Twelve (12) members of the committee were in attendance.
Decision
The twelve members unanimously voted to raise the MPR.
• Seven out of twelve members voted to raise MPR by 100bps to 17.5%
• Retain the asymmetric corridor of the MPR at +100 / -700 basis points.
• Retain CRR at 32.5%.
• Retain liquidity ratio at 30%.
The MPC noted that the broad outlook for both the global and domestic economies remains uncertain, as the path to full recovery remains clouded by risks such as lingering headwinds from the Russia-Ukraine crisis, heightened inflationary pressure across several economies and a slowdown in economic activities in China amid the resurgences of COVID-19. Others include tightening external financial conditions as monetary policy normalisation continues and increasing risks of a global debt crisis as corporate and public debt levels rise.
Regarding the domestic economy, the MPC noted that the available data and forecast for key macroeconomic indicators suggest that the economy will continue to grow in 2023 but at a subdued pace. According to the committee, insecurity, PMS scarcity, elevated prices of other energy sources (diesel and aviation fuel), spending towards the 2023 general election, rising cost of debt servicing, and deteriorating fiscal balance remain critical sources of shocks to the Nigerian economy.
The committee noted that the improvement in the equities market within the review period reflected better-than-expected corporate earnings and improved investor confidence in the market. In addition, the committee noted that the decline in external reserves recorded in the period reflects heightened demand for fx and slow accretion to the reserves.
In the banking system, MPC noted the continuous improvement in the NPL ratio, which declined to 4.2% in December ’22 from 4.9% recorded in November ‘22. According to the committee, a tight prudential regime was required to ensure that NPL remains below its prudential benchmark of 5%. Furthermore, the liquidity ratio at 44.1% was above its prudential limit of 30%, while the capital adequacy ratio remained at 13.4%, within the prudential limit of 10 -15%.
The MPC noted that loosening could lead to a more aggressive rise in inflation and erode the gains achieved through previous rate hikes. Furthermore, a hold stance was also not in consideration, as this would suggest a weak thrust towards CBN’s goal of taming inflation. Although the committee noted the decline in y/y inflation in December ’22, they believed that the economy remains confronted with the risk of higher inflation, with adverse consequences on living standards.
Tightening would signal confidence in the effectiveness of its monetary policy direction to combat elevated inflation, improve financial system stability, help narrow the negative real interest rate margin, and moderate exchange rate fluctuations.
To read the full report, click here
