November 26, 2024/Coronation Research
MPC Decision
- Monetary Policy Rate hiked by +25bps to 27.50% from 27.25%.
- Asymmetric corridor around the MPR retained at +500bps /-100bps.
- Cash Reserve Ratio for Deposit Money Banks retained at 50.00%.
- CRR for Merchant Banks retained at 16.00%.
- Liquidity ratio retained at 30.00%.
The Monetary Policy Committee voted unanimously to raise the policy rate on the back of renewed inflationary pressures, as inflation continues to constrain purchasing power and negatively affect the welfare of citizens. It raised the rate by +25bps, compared with our expectation of a hike of either +50bps or +100bps. The reason for the MPC’s caution is attributable to its positive interpretation of future developments in food prices and to the strength of the current account and the external reserve position (foreign exchange reserves).
The committee highlighted the role of rising energy prices on inflation, noting that the recent fuel price increase has raised costs of production and of distribution of food items and manufactured goods. The committee expressed optimism that full deregulation of the downstream sector of the petroleum industry will eliminate scarcity and stabilise price levels in the short-to-medium term.
The committee affirmed its expectation of food price increases slowing down due to improved security in the north-east of the country, which is set to increase food production in this region. Therefore, the committee strongly reiterated the need for continued collaboration between monetary and fiscal authorities to ensure the achievement of price stability and sustainable growth.
The MPC noted the improvement in the external sector reflected by the increase in the current account surplus, enhanced remittances, and capital inflows that have impacted external reserves positively. This suggests that key policy measures on the part of both fiscal and monetary authorities are yielding their desired outcomes.
On exchange rate volatility. The committee expressed concerns about persisting exchange rate pressure reflecting increasing demand for US dollars. The committee therefore urged banks to explore measures to boost market liquidity.
On bank sector stability. The committee noted with satisfaction the continued resilience and stability of the banking system despite exogeneous and endogenous headwinds. Key financial soundness indicators, such as the Capital Adequacy Ratio (CAR), Non-performing Loans (NPL), the Liquidity Ratio (LR), amongst others, remain strong. The banks were urged to maintain close surveillance of the banking system to sustain compliance with regulatory thresholds.
The next meeting of the Monetary Policy Committee is scheduled to hold on 25th and 26th January 2025.
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