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Nigeria Monetary Policy March 2024

Nigeria: Central Bank delivers further hike in March

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) met on schedule between 25–26 March and decided to increase the key rate by 200 basis points to 24.75%. The decision, which followed February’s 400 basis point hike, surprised markets on the upside; analysts had priced in a smaller hike. Meanwhile, the Bank increased the cash reserve ratio of merchant banks to 14.00% from 10.50% and narrowed the interest rate corridor around the key rate to +100/-300 basis points from +100/-700 basis points.

Inflation continued to accelerate in February after reaching its highest level since May 1996 in January; price pressures rose to 31.7% (January: +29.9%). Against this backdrop, the Bank opted against pausing its tightening cycle, aiming to restore household purchasing power in the short-to-medium run. Despite noting improving stability in the foreign exchange market since its last meeting, the CBN also reaffirmed its commitment to mitigating exchange rate pressures.

The communiqué was again void of explicit forward guidance. That said, the CBN expects most central banks across the globe to retain elevated interest rates in the short-to-medium term. Consequently, the Bank stated that it would “continue to monitor developments in the global and domestic economies to ensure that inflationary expectations are anchored”. Half of our panelists expect the tightening cycle to have reached its peak, while others see room for additional hikes by end-2024.

The next meeting is scheduled for 20–21 May.

Analysts at Goldman Sachs commented on the outlook for the exchange rate:

“We interpret the further rate increase (following the 400bp hike last month) and accompanying measures as an attempt to keep liquidity tight in the face of inflation pressures and FX market volatility.”

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