CBN Going With The Flow – Hikes MPR Again (15.5% P.A.)

The monetary policy committee this week, as widely expected, raised the benchmark interest rate by 150bps to 15.5%p.a. However, the magnitude of the hike took the markets by surprise. The decision, which was hinged on curbing inflation (20.52%) and currency weakness (N740/$), is in tandem with the global and regional trend. A few weeks ago, the US Fed and BoE hiked interest rates by 75bps and 50bps respectively.

However, we fear that the CBN’s aggressive rate hike might not arrest inflation in the short term for two reasons. First is the time lag between policy and impact, especially as the nominal anchor rate is disconnected from other market rates. Secondly, high commodity prices in Nigeria are largely driven by unresolved structural factors such as insecurity, exchange rate fluctuations, and high energy costs.

What’s more surprising with the decision of the CBN was the 5% increase in the CRR to 32.5%, which will further squeeze banking sector liquidity.

What’s Next? 

Some very important macroeconomic data points will be announced in October before the next MPC meeting. We have our lens on the Q3’22 GDP growth, which could slow to 2.3% on lingering supply chain disruptions, and September inflation which may rise at a slower pace to 20.7%. Also, the external reserves could continue to bleed towards $36bn-$37bn as Brent stays firmly below $100pb. 

In the download and video link below, Bismarck Rewane breaks down the implications of the recent interest rate and CRR hike on investors, banking sector, businesses, consumers, and overall economic performance.

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