September 24,2024/CBN

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) held its 297th meeting on September 23rd and 24th, 2024, to review recent economic and financial developments and assess risks to the outlook. Eleven (11) of the committee’s twelve members were in attendance. 

Decisions of the MPC 

The Committee was unanimous in its decision to tighten policy further and thus decided as follows:

1. Raise the MPR by 50 basis points to 27.25% from 26.75%. 
2. Retain the asymmetric corridor around the MPR at +500/-100 basis points. 
3. Raise the Cash Reserve Ratio of Deposit Money Banks by 500 basis points to 50% from 45% and Merchant Banks by 200 basis points to 16% from 14%. 
4. Retain the Liquidity Ratio at 30%. 

Considerations 

The Committee noted the moderation in headline inflation year-on-year in July and August 2024. In addition, the MPC noted the relative stability and convergence in the exchange rate across the various market segments, resulting from the Bank’s tight monetary policy stance. This is expected to improve confidence, enabling economic agents to plan in the medium to long term.

The Committee was, however, unanimous in recognising that a lot more is required to actualise the Bank’s price stability mandate. The MPC noted that although headline inflation trended downwards due to a moderation in food inflation, core inflation has remained elevated, driven primarily by rising energy prices. The uptrend poses severe concerns to Members, indicating the persistence of inflationary pressures. Thus, members reiterated the need to collaborate closely with the fiscal authority to address the current upward pressure on energy prices. The MPC noted the continued growth in money supply, recognising the need to curtail excess liquidity in the system and address foreign exchange demand pressures. Members were also concerned about the growing fiscal deficit but acknowledged the commitment of the fiscal authority not to resort to monetary financing through Ways & Means. Furthermore, members observed a strong correlation between FAAC releases and liquidity levels in the banking system and its impact on the exchange rate. The Committee, therefore, agreed to increase monitoring of future releases to address its effects on price developments. 

Regarding food inflation, the upside risks remained flooding, hikes in energy prices, scarcity of PMS, and, most importantly, insecurity in farming communities. Considering the weight of food in the CPI basket, Members recognised the efforts of the Federal Government in addressing insecurity in farming communities and stressed the need to remain steadfast. In addition, the MPC applauded the ongoing effort of the Federal Government to bridge the food supply deficit through the duty-free import window for food commodities. The Committee also expressed optimism that lifting refined petroleum products from Dangote refinery will moderate transportation costs and significantly support the easing of food price pressures in the short to medium term. This is also expected to moderate foreign exchange demand for the importation of refined petroleum products, with a positive spillover on external reserves and an improvement in the overall balance of payment. 

Members assessed the performance of key financial soundness indicators and noted with satisfaction that despite familiar headwinds, the banking industry remains safe, sound, and stable. The Committee, however, emphasised the need to sustain supervisory oversight of the industry to strengthen its continued support of the economy. 

Following these considerations, Members deliberated on the optimal policy option to sustain the downward trend in price development, contain emerging risks to inflation, stabilise the exchange rate and safeguard the banking system while also shielding the recovery of output growth. In addition, Members noted that the real policy rate remains negative even after the recent moderation in headline inflation. Efforts must be sustained to attract investments into the economy to achieve a positive real interest rate. This would enhance the economy’s competitiveness for international capital, thereby improving the exchange rate. Following a review of the upside risks to price development and the downside risks to the recovery of output growth, the Committee opted to tighten policy further to safeguard the gains already accrued in moderating inflationary pressure. 

Key Developments in the Domestic and Global Economies 

According to the National Bureau of Statistics, headline inflation moderated to 32.15% in August 2024 from 33.4% in July, driven by a decline in food inflation, while the core component inched up. Food inflation eased to 37.52% in August 2024, compared with 39.53% in July, while core inflation rose marginally to 27.58% in August 2024, compared with 27.47% in July. Month-on-month, headline inflation fell to 2.22% in August 2024 from 2.28% in the preceding month, while food inflation eased to 2.37% in August 2024, compared with 2.47% in July. Core inflation, however, rose marginally to 2.27% in August 2024, compared with 2.16% in July. 

Real GDP (year-on-year) grew by 3.19% in the second quarter of 2024, compared with 2.98% in the first quarter, driven by both the oil and non-oil sectors. Staff forecast indicates that the economy will grow by 3.32% in 2024. 

The external reserve stood at US$39.07bn as of 19 September 2024, an increase of 17.4% compared with US$33.28bn in the corresponding period of 2023. This represents eight months of import cover for goods and services and 13 months of imports of goods only. 

The IMF’s global growth projection remains at 3.2% in 2024 and 3.3% in 2025. Some downside risks to this projection remain geo-economic fragmentation, elevated global debt, and ongoing geopolitical tensions between Russia and Ukraine and Israel and neighbouring countries. As key central banks commence monetary easing, global financial conditions are expected to ease gradually and hopefully offset the downside risks to global growth recovery. Global inflation is expected to continue decelerating in 2024 but may remain above the long-run targets of most central banks in the advanced economies. 

Thus, members expressed their commitment to continuous monitoring of developments in the global and domestic economies to ensure that the appropriate response is always deployed to address emerging risks. 

The next meeting of the Committee will be held on the 25th and 26th of November 2024. 

Olayemi Cardoso 

Governor,
Central Bank of Nigeria

24th September 2024