On July 25, 2023, the Central Bank of Nigeria (CBN) released Communiqué No. 149 summarizing the key outcomes of the Monetary Policy Committee (MPC) meeting held on July 24th and 25th. The meeting occurred amidst global and domestic uncertainties, which posed significant challenges to the country’s economic outlook. The CBN reviewed global and domestic economic developments and made important decisions to address inflationary pressures and sustain economic recovery. The Nigerian Bureau of Statistics reported inflation for June 2023 at about 22.7% – trendswatch.co. This coupled with the cost of living crisis, the floating of the Naira (the Nigerian national currency) against the dollar, and the removal of subsidy on petrol will certainly present significant pressure on household budgets.
Key Facts
- Monetary Policy Rate – 18.75%
- Cash reserve ratio – 32.50%
- Liquidity Raio – 30.00%
- Asymmetric Corridor: plus 100 Basis Points and minus 300 Basis Points
Votes:
- 2 members voted to raise MPR by 50 bps
- 4 members voted to raise MPR by 25 bps
- 5 members voted to raise MPR by 25 bps
Global Economic Developments:
The MPC examined the impediments to the smooth recovery of the global economy, including geopolitical tensions and threats to globalization. Notably, the hostility between Russia and Ukraine and China’s slow recovery were identified as factors affecting international trade. Inflation remained elevated in several advanced economies and was projected to stay high throughout 2023, despite efforts by central banks to ease the pressure. Financial markets were witnessing a preference for advanced economy fixed-income securities and safe-haven assets.
Cash reserve ratio – 32.50%
Domestic Economic Developments
The Nigerian economy experienced moderate output growth, driven by the services and industry sectors, despite challenges. Inflation remained a major concern, driven by security challenges in food-producing areas, high transportation costs, and inadequate public infrastructure. Removing subsidies on petroleum prices and shifting to a market-determined exchange rate was expected to sustain upward pressure on domestic prices.
Outlook and Policy Decisions
Though uncertainties remained, the overall outlook for global and domestic economic recovery was moderately positive. The MPC recognized the need to address the rise in inflation and its potential adverse effects on output growth and household income. To combat inflationary pressures and improve investor confidence, the committee called for decisive measures, including moderate policy rate hikes, to anchor inflation expectations and narrow the negative real interest rate gap.
the MPC chose to raise the Monetary Policy Rate (MPR) by 25 basis points, from 18.50 to 18.75 percent.
CBN
MPC Decision
After considering the impact of inflation on various macroeconomic variables, the MPC chose to raise the Monetary Policy Rate (MPR) by 25 basis points, from 18.50 to 18.75 percent. This decision aimed to support efforts at anchoring inflation expectations, improving investor confidence, and stimulating economic recovery. Additionally, the committee adjusted the asymmetric corridor around the MPR and retained the Cash Reserve Ratio (CRR) and Liquidity Ratio at 32.5 percent and 30 percent, respectively.
Written by Onigbo Chidera
