The decision to increase the monetary policy rate by +200bps aligns with our forecast range of an MPR hike spanning from +100 to +200bps.

It is pertinent to note that the adjustment of the asymmetric corridor of the MPR to +100/-300bps reinstates this monetary policy parameter to its antecedent range, as observed prior to the February MPC meeting.

The adjustment to the cash-reserves-ratio for merchant banks was disclosed, a hike of +400bps to 14% (previously, 10%).

Diving deeper, the MPC’s deliberations centered on prevailing inflationary pressures and the imperative to firmly anchor inflation expectations, while simultaneously ensuring the preservation of foreign exchange stability. The MPC acknowledged the persistent upward trajectory of headline inflation, predominantly propelled by escalating food prices attributable to supply shortages and heightened expenses associated with logistics and distribution.

MPC members commended the proactive initiatives undertaken by the FGN in tackling food insecurity. These initiatives encompass the distribution of palliatives, the release of grains from strategic reserves, and the dissemination of seeds, fertilizers, and farming implements to bolster dry season farming endeavours.

Note that Nigeria’s food inflation rate is currently 37.92% y/y. 

On fx market dynamics: the committee noted with satisfaction the level of stability achieved in the fx market in past few weeks. This reflects the impact of the CBN’s recent policy actions and reforms as well as increased transparency in the market. The committee noted the efforts of the CBN in offsetting verified fx obligations, an action that would greatly enhance investor confidence and attract foreign investments into Nigeria. Since the last MPC meeting held on the 26th and 27th of February ‘24, NGN/USD has appreciated by 13% in the NAFEM window. 

Furthermore, the CBN governor reiterated that one priority was to take care of verified forward contracts. The infractions noted for fx forwards deemed invalid include – no Form M and/or allocations were made with no requests or the absence of naira equivalent. Law enforcement agencies are investigating invalid forward contracts. We note that USD2.4bn is the current estimate of invalid fx forward deliverables.