TUE, MAR 26 2024-theGBJournal| The Central Bank of Nigeria (CBN) raised monetary policy rates (MPR) by 200bps to 24.75% (Previously: 22.75%) at the end of its 294th Monetary Policy Committee meeting on Tuesday, its highest level ever, and in line with market expectations.
The Committee adjusted the asymmetric corridor from +100/-700 to +100/-300 around the MPR, retained the cash reserve ratio (CRR) of commercial banks at 45% as its excess liquidity mop up exercise continues, adjustee the CRR of Merchant Banks from 10% to 14% and held the liquidity ratio constant at 30.00%.
The interest rate hikes underscores the apex bank’s intolerance for further price increases and its commitment to ensuring inflation is brought down towards the target level. It also reflects its observed significant pass-through effect of the exchange rate on domestic prices.
Inflation remains elevated, reaching a 25-year high of 31.70% in February (January: 29.90%), driven by the troika impact of naira depreciation, lower food supplies due to harvest depletion and increased smuggling activities, and higher energy prices.
Meanwhile, market analysts continues to be wary of the impact of the rate hike on equities and the fixed income market in particular, which they say will see prolonged bearish sentiment.
The fixed income market went bearish due to tighter liquidity conditions following the February 400bps hike with yields tumbling down on sell offs induced by positioning for higher Primary Market Auction (PMA) issuances, elevated stop rates at the PMA, and an increase in consumer prices (+98bps to 29.90%).
Similarly the equities market saw reduced interest, particularly among domestic institutional investors.
With the latest hike, a further negative impact on the equities market performance in the short term is anticipated.
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