In brief
- The Monetary Policy Committee (MPC) of Nigeria’s Central Bank delivered a marginal hike of 50bps on the Monetary Policy Rate (MPR) to 26.75% at the July 2024 MPC meeting. In addition to the policy rate hike, the Committee adjusted the asymmetric corridor around the policy rate by +400bps on the CBN lending facility and +200bps on the CBN deposit facility.
- On the face of it, the 50bps hike in the policy rate appears less aggressive against the MPC’s quest to squeeze Naira liquidity via increased interest rates. Having already delivered a cumulative MPR hike of 750bps since February 2024, we think the hawks are steadily braking mid-air as the MPC appears to be moderating its hawkishness. However, we view the Committee’s decision to also increase the asymmetric corridor around the policy rate to 600bps (vs 400bps prior) as indicating continued but subtle hawkishness.
- In recent weeks, we observed intensified depreciation pressure on the Nigerian Naira on account of heightened seasonal demand and importers’ need for foreign exchange. This prompted the CBN into spot FX sales to Authorised Dealer Banks and Bureau De Change operators with USD 343.0mn sold as of 19th July 2024. Despite a 6.0% month-to-date rise in gross forex reserves to USD 36.2bn as of 22nd July 2024, we believe sustainability of the spot FX sale is doubtful without curtailing Naira liquidity. In view of this, we believe the marginal MPR hike in addition to increasing the spread around the policy rate indicates the MPC’s continued preference for tighter monetary stance to quell the renewed FX pressures.
- A dominant theme in the July 2024 MPC statement was the need for fiscal measures to ease the food price pressures with the MPC committing to collaborate with the fiscal authorities to subdue the food price hikes. We view this complementary monetary support for the recent fiscal interventions as a strong indication that the MPC may be nearing the peak of its policy rate hikes as it leans on fiscal measures to boost domestic output and ease price pressures.
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