TUE, 19 JULY, 2022-theGBJournal| The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted to increase the Monetary Policy Rate (MPR) by 100bps to 14.0% Today.
The Committee also voted to retain the Cash Reserve Requirement (CRR) at 27.5%, liquidity ratio at 30.0% and asymmetric corridor around the MPR at +100bps/-700bps.
Expectedly, the Committee expressed concerns about the rising inflationary pressures even as the Russia-Ukraine conflict and ongoing planting season introduce fresh risks amidst the unfavourable base from the prior year.
Domestic inflationary pressures remain elevated on account of the lingering food supply-demand imbalance, elevated gas and other energy prices, intermittent PMS shortages, currency pressures, and increased taxes in line with the 2021 Finance Act. Notably, the headline inflation rose by 89bps in June to 18.60% y/y (May: 17.71% y/y) – the highest print since January 2017 (18.72% y/y).
We highlight broad-based pressures across the food and core baskets. While food inflation (+110bps to 20.60% y/y) increased to an 11-month high, we highlight that the core inflation (+85bps to 15.75% y/y) is at its highest level since February 2017 (16.01% y/y).
Meanwhile, since the last MPC meeting in May, global central banks have intensified their interest rate hiking cycles to contain the stubbornly high inflationary pressures. Indeed, the Federal Open Market Committee (FOMC) raised the federal funds rate by 75bps at the June policy meeting – the largest hike since 1994.
At the same time, the MPC of the Bank of England (BOE) increased the bank rate by 25bps to 1.25% – the highest rate since January 2009 (1.50%). We highlight common factors provided by both Committees as justifications for increasing their respective key policy rates –elevated inflationary pressures, tight labour market conditions, and risks that inflationary pressures have become more persistent.
Notably, with the US CPI print for June rising to a record high of 9.1% y/y and ahead of market expectations (8.8% y/y) for the second consecutive month, the market is currently pricing a 75bps hike in the federal funds rate at the FOMC’s next policy meeting on 27 July.
The hawkish chorus among global central banks’ played a major theme of discussion at this meeting, given that tighter global financing conditions result in capital flow reversals from emerging economies like Nigeria.
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