March 21, 2023/Coronation Research
Twelve (12) members of the committee were in attendance.
Decision
The Twelve members unanimously voted to raise the MPR.
• Ten out of Twelve members voted to raise MPR by 50bps to 18%
• Retain the asymmetric corridor of the MPR at +100 / -700 basis points.
• Retain CRR at 32.5%.
• Retain liquidity ratio at 30%.
One member voted to raise the policy rate by 25bps, and another member voted for a hold stance.
The MPC noted that the broad outlook for global and domestic economies remains uncertain due to the ongoing Russia-Ukraine crisis, the deteriorating relationship between US and China over Taiwan’s sovereignty, heightened inflationary pressures in the energy market and supply chain disruptions. There are also growing concerns around the global banking system.
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 moderate pace. According to the committee, persistent PMS scarcity, the rising cost of debt, upward inflationary pressures and deteriorating fiscal balances would remain drivers of shocks to the Nigerian economy. The committee noted that the Naira redesign and currency withdrawal limit policy has resulted in a sizable reduction of currency outside the bank, indicating expected improvement in the potency of monetary policy tools.
However, they called on depository corporations, online payment platforms and other stakeholders to ensure that the prevailing incidences of network failure are resolved in the short-term. This should ensure effective implementation of the naira redesign and the CBN’s cashless policy program.
The committee highlighted that the sustained improvement in the equities market reflected renewed investor confidence. In addition, the MPC noted that the recent marginal decline in external reserves reflects the downward trend in oil price, as recession concerns rise.
While there have been concerns in the Nigerian banking system due to the collapse of banks in the United States and Switzerland, the MPC pointed that the Nigerian banking sector remains resilient due to the stringent prudential guidelines. For emphasis, the liquidity ratio declined to 43.1%, but remained above its prudential limit of 30%, while the capital adequacy ratio increased to 13.7%, within the prudential limit of 10 and 15%. Furthermore, the committee noted that NPL ratio remained unchanged at 4.2%. However, a tight prudential regime is required to ensure that NPL remains below its prudential benchmark of 5%.
The MPC noted that loosening or holding could undermine the gains achieved through previous rate hikes, as the economy remains confronted with the risk of higher inflation, with adverse consequences on living standards.
Therefore, tightening was necessary to offset the continued upward risk in price development such as the expected removal of the PMS subsidy, rising prices of other energy sources, continued exchange rate pressures and uncertain climate conditions. The MPC believes that tightening would demonstrate confidence in the effectiveness of its monetary policy to combat elevated inflation, enhance financial system stability, contribute to the reduction of the negative real interest rate margin, and control exchange rate fluctuations.
To read the full report, click here
