At the 4^th MPC meeting of the year, the Committee unanimously voted to RAISE policy rate further by 25bps to 18.75% and to tighten the asymmetric corridor from +100/-700 basis points to +100/-300 basis points around the MPR, leaving other policy parameters unchanged.  

Other parameters retained were:

• The CRR at 32.50% and
• The Liquidity Ratio at 30%.

Comment: At the recent meeting, the Monetary Policy Committee (MPC) voted on various measures to address inflationary pressures in the economy. Out of the 11 members, 6 voted in favor of an increase in the policy rate. Among them, 4 members supported a 25bps rate increase, while 2 members favored a more aggressive 50bps rate increase. Five members voted to keep the policy rate unchanged. Additionally, all MPC members voted to tighten the asymmetric corridor, adjusting it from +100/-700 basis points to +100/-300 basis points. The committee decided to leave other policy parameters unchanged. During the meeting, the MPC acknowledged that despite previous rate hikes in recent months, inflation had sustained upward pressures due to several legacy headwinds. These challenges included insecurity in major food-producing areas, high transportation costs driven by rising energy prices, and inadequacies in public infrastructure contributing to the rise in food prices. The committee also noted that key developments, such as the removal of the PMS subsidy and the transition to a unified and market-determined exchange rate regime, are likely to maintain upward pressures on inflation in the short to medium term. However, members believed that the recent foreign exchange market reform policy would attract foreign inflows, assisting in moderating exchange rate pressures. Considering the options of either holding or raising the monetary policy rate, the committee adopted a hawkish tone but at a slower pace. Ultimately, the MPC unanimously decided to implement a 25bps rate hike and narrow the asymmetric corridor to counter the moderate increases in headline inflation.

Going forward, we expect the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to continue its approach of gradually tightening monetary policy, albeit at a slower pace. However, given that the underlying drivers of inflation mainly stem from supply-side factors, we reiterate in the need for the government to complement monetary measures with appropriate fiscal policy changes.