July 26, 2023/Research & Strategy
Futureview Financial Services Limited
Additionally, this MPC meeting is the first to take place under President Bola Tinubu’s administration.
The asymmetric corridor to +100/-300 basis points around the MPR from +100/-700 basis points
Monetary Policy Rate increased by 25 bps to 18.75%
The Liquidity Ratio retained at 30%
The Cash Reserve Ratio (CRR) retained at 32.5%
The decision to raise interest rates further was driven by the country’s escalating inflation rate. Nigeria’s headline inflation reached 22.79% in June 2023, the highest rate since September 2005, despite multiple interest rate hikes by the CBN in the last 14 months. Inflation is anticipated to rise further due to the petrol subsidy removal and exchange rate convergence.
Intriguingly, despite the CBN’s contractionary measures to tighten liquidity in the country, Nigeria’s money supply witnessed a significant surge. Money supply increased by N8.8 trillion in June 2023 to N64.3 trillion, the highest level on record based on CBN data. This surge occurred despite an increase in currency in circulation and credits to both the government and private sector. This situation indicates that raising interest rates alone may not be sufficient to curb liquidity and inflationary pressure in the country, as evidenced by the continued spike in money supply and inflation.
