Central Bank of Nigeria CBN Monetary Policy Committee raised its key interest rate for the sixth time this year, citing renewed inflationary and exchange rate pressures. The decision to raise the Monetary Policy Rate by 25 basis points to 27.50%takes this year’s hikes to a cumulative 875 basis points. Most economists polled by Reuters had predicted more policy tightening on Tuesday. Inflation rose for the second straight month to 33.88% in annual terms in October in what has been the country’s worst cost-of-living crisis in decades. Central Bank of Nigeria Governor Olayemi Cardoso said food and energy prices were key contributors to the uptick in inflation, and that persistent pressure on the country’s naira currency was a concern. “Members therefore agreed unanimously to remain focused in addressing price developments,” he told a news conference in the capital Abuja.
Cardoso said the central bank was committed to the “war against inflation” and expected the results of its tightening steps would be more visible in the first quarter of 2025. “It’s also important for people to understand that there’s a time lag between when you implement policies and when they have an impact,” he said. Price pressures have been spurred by President Bola Tinubu’s moves to slash petrol and electricity subsidies and devalue the Naira. Those steps are aimed at lifting economic growth and shoring up public finances in Africa’s top oil producer, though the growth rate remains well below a 6% target set by Tinubu. After Tuesday’s hike, Capital Economics said in a research note that it thought Nigeria’s tightening cycle was over, though it did not expect rate cuts until the second quarter of next year. Razia Khan at Standard Chartered said a stable Naira would be key to containing inflation and if the central bank achieved currency stability there could be little need for more hikes.
In tandem with our expectations, at its 298th meeting, the Monetary Policy Committee (MPC of the CBN raised the benchmark interest rate by 25bps to 27.50 %. Meanwhile, the other parameters were left unchanged – CRR: 50.0% & 16.0% for commercial & merchant banks, Asymmetric corridor: +500/-100 bps. According to CBN “The Committee was unanimous in its decision to further tighten policy and thus decided as follows: Raise the MPR by 25 basis points to 27.50 per cent from 27.25 per cent. Retain the asymmetric corridor around the MPR at +500/-100 basis points. Retain the Cash Reserve Ratio of Deposit Money Banks at 50.00 per cent and Merchant Banks at 16 per cent. Retain the Liquidity Ratio at 30.00 per cent. This meeting was held on the backdrop of renewed inflationary pressures, as the headline, food and core measures rose year-on-year in October 2024.
“The Committee was particularly concerned that all three measures also inched up on a month-on-month basis, suggesting the persistence of price pressures, with attendant adverse impacts on income and welfare of citizens. Members, therefore, agreed unanimously to remain focused in addressing price developments. “While food prices remain a key contributor to the uptick, Members commended the efforts of the Federal Government for the improved security, especially in the North-East of the country, which would likely improve food production. The Committee also noted the role of rising energy prices on the general price level due to its impact on factors of production. The recent increase in the price of Premium Motor Spirit (PMS) has also impacted the cost of production and distribution of food items and manufactured goods.
“The Committee was optimistic that the full deregulation of the downstream sub-sector of the petroleum industry would eliminate scarcity and stabilise price levels in the short to medium term. Members thus, reiterated the need to strongly forge ahead with the deepening collaboration between the monetary and fiscal authorities to ensure the achievement of our synchronized objectives of price stability and sustainable growth. The Committee noted the improvement in the external sector, reflected by the increase in the current account surplus, enhanced remittance and capital inflows which have impacted the external reserves positively. This, therefore, suggests that key policy measures by both the monetary and fiscal authorities are yielding the desired outcomes. Members, however, expressed concern over persisting exchange rate pressure, reflecting continued high demand in Central Bank of Nigeria the market.
“Consequently, the Committee urged the Bank to explore measures to boost market liquidity. Members noted with satisfaction the continued resilience and stability of the banking system despite significant exogenous and endogenous headwinds. Key financial soundness indicators such as the Capital Adequacy Ratio (CAR), Non-Performing Loan ratio (NPL), Liquidity Ratio (LR), amongst others, remain strong. The MPC, however, called on the Bank to maintain its close surveillance on the banking system to sustain compliance with regulatory thresholds and continued health of the industry. The MPC acknowledged the efforts of the Bank in deepening financial inclusion, towards improving the transmission mechanism of monetary policy to enhance policy effectiveness”.
