Nigeria: Central Bank raises rates in July
Latest bank decision: At its meeting on 22–23 July, the Central Bank of Nigeria (CBN) raised the Monetary Policy Rate (MPR) by 50 basis points to 26.75%. Moreover, it adjusted the asymmetric corridor around the MPR to between plus 500 basis points and minus 100 basis points from between plus 100 basis points and minus 300 basis points. Meanwhile, it left both the Cash Reserve Ratio and the Liquidity Ratio unchanged.
Monetary policy drivers: The Bank’s decision was driven by the need to control inflation, which has been persistently high for food and energy amid insecurity in food-producing areas and the high cost of transporting farm produce.
Regarding the naira, the CBN highlighted that the spread between the parallel and official foreign exchange rates had narrowed and that rising foreign reserves would help to stabilize the exchange rate.
Policy outlook: The CBN’s forward guidance grew more hawkish, stating that, “to consolidate on the gains thus far achieved”, it would “stay on course with its tightening cycle in view of the urgent need to address inflationary pressures”. Accordingly, our Consensus is for additional hikes by end-2024. The next meeting is scheduled for 23–24 September.
Panelist insight: Analysts at Fitch Solutions commented on the outlook:
“We project that the MPC will implement another 50bps hike at the next meeting in September, bringing the policy rate to 27.25%. Excess liquidity in the real economy – evidenced by the widening spread between broad money and nominal GDP growth – will remain a key concern for policymakers, exerting upward pressure on price growth. While we expect deflation to kick in over H2 2024, this will be almost entirely caused by statistical base effects as the year-on-year impacts of petrol price increases fade.”