The Monetary Policy Committee (MPC) held its fourth meeting for the year on the 24th and 25th of July. Members of the Committee were largely divergent in reaching their decisions: 6 members voted to hike the Monetary Policy Rate (MPR) by varying degrees: four members by 25bps to 18.75%, and two members by 50bps to 19.00%. However, five members voted to maintain the rate at 18.50%. The overall result indicated the committee’s less aggressive policy stance, with a slight majority favouring the 25bps rate increase. All other parameters were left unchanged, except for the reduction of the lower bound of the asymmetric corridor to -300bps from – 700bps.
The Committee in its considerations, assessed the global and domestic developments that are expected to keep inflation at elevated levels throughout 2023. Key factors considered were the sluggish rebound of China’s economy affecting global trade, the tight global financial conditions even as authorities combat inflationary pressures, and geopolitical tensions between Russia and Ukraine impacting the global food supply and leading to higher food prices.
On the domestic front, the Committee focused on the persistent increase in headline inflation and the moderate recovery of output growth as some of the factors shaping their outlook for the rest of the year. The Central Bank of Nigeria (CBN)’s output growth projection is moderate at 2.66% in 2023, 4.20% by the Federal Government’s estimate and 3.20% by the International Monetary Fund. However, considerations were made around challenges that persist due to insecurity in food-producing regions, elevated energy and transport costs following the fuel subsidy removal, and the shift to a market-determined exchange rate.
Overall, the MPC’s actions demonstrate a sustained commitment to tame inflation amid economic challenges. In our view, the impact on financial markets is expected to be limited. We do not expect any significant effect on the equities market. In the fixed income market, the likelihood of an upward yield trajectory depends on the extent to which the change in the asymmetric corridor tapers system liquidity.
