May 24, 2023/Coronation Research
Eleven (11) members of the committee were in attendance.
Decision
The Eleven members unanimously voted to raise the MPR.
• Ten out of Eleven members voted to raise MPR by +50bps to 18.5%
• 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.
The MPC noted that the broad outlook for both the global and domestic economies remain clouded by legacy and emerging risks. Output growth has remained moderate in most advanced and emerging economies, while inflation remains elevated and above target. The committee noted key risks such as the contagion risk arising from the US banking crisis, the ongoing Russia-Ukraine crisis, and growing tensions between China and the US.
Regarding the domestic economy, the MPC noted available data and forecast for key macroeconomic indicators suggest that the economy will continue to grow in 2023 but at a subdued pace. However, insecurity, high energy costs, and the rising cost of debt servicing would remain drivers of economic shocks.
The committee noted that the decline in the equities market can be attributed to the lull following end-of-year activities by various companies on the exchange. In addition, the MPC noted that the moderate decline in external reserves reflects suboptimal accretion to reserves from oil exports.
The MPC highlighted the sustained stability in the banking system, as the liquidity ratio increased to 45.3% but remained above its prudential limit of 30%, the capital adequacy ratio declined to 12.8% (still within the prudential limit of 10 – 15%). Furthermore, the NPL ratio increased to 4.4% in April ’23, below its prudential benchmark of 5%. The committee noted that strict vigilance is still required to insulate the banking system from potential spill-over effects arising from domestic and external shocks.
The MPC expressed that upticks in headline inflation are largely due to non-monetary factors outside CBN’s purview. However, the committee noted that loosening or holding would undermine the gains achieved through previous rate hikes, as the economy remains confronted with the risk of higher inflation in the near term. Additionally, loosening would widen the negative real interest rate margin and lead to further fx depreciation.
Therefore, tightening was necessary to offset the adverse impact of rising inflation on real income. The MPC believes that tightening would demonstrate confidence in the effectiveness of its monetary policy to combat elevated inflation and discourage further buildup of aggressive demand.
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