In brief
- The Monetary Policy Committee (MPC) of Nigeria’s Central Bank unanimously delivered a 25bps increase in the Monetary Policy Rate (MPR) to 27.5% as the authorities expressed particular concerns about persistence of price pressures. The MPC however retained the other parameters of monetary policy at their previous levels, leaning on the transmission lag from previous hikes to sustain the tightening path.
- The MPC’s commitment to orthodox monetary policy regime underscores our expectation for local interest rates to stay higher for longer until the policy stance becomes restrictive. We believe the aggressive start to the rate hiking cycle, complemented by upward adjustments in the other tools of monetary policy, has enabled the MPC to slow its pace of rate hikes in recent MPC meetings. However, we expect the hawkish posture to persist into 1H2025 as Nigeria’s negative ex-post real policy rate (-6.6%) compares unfavourably with peer countries such as Egypt (+1.3%) and Ghana (+4.9%) whose nominal policy rates also screen around the 27.0% area.
- The MPC expressed optimism that the Government’s commendable measures which have tightened security in the agrarian zones will likely improve food production and ease food price pressures. We note that the recent scarcity-induced spike in petrol prices has undermined the benefit of the Government’s 150-day duty-free import window for food commodities, reviving the upward pressure on food inflation.
- Our checks on the gross forex reserve showed an inter-meeting growth of 6.6% to USD 40.3bn as of 25 November 2024, sufficient to finance 17-months of imports. Given the impressive pace of reserves accumulation, partly aided by the CBN’s less frequent market intervention sales, we view the MPC’s proposal for increased market liquidity as a potential trigger for enhanced FX sale to the market in the coming weeks. Additionally, the introduction of Bloomberg BMATCH System for all FX trading will enhance market efficiency, transparency and price discovery for medium-term Naira stability.
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