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Nigeria Monetary Policy May 2022

Nigeria: Central Bank surprises markets with hike in May

The Monetary Policy Committee of the Central Bank of Nigeria took market analysts by surprise when it hiked the monetary policy rate (MPR) by 150 basis points from 11.50% to 13.00% at its 24 May meeting. This marked the first rate increase since July 2016. Although the decision to hike the rate was unanimous, there were differing opinions regarding the size of the increase: Six members voted in favor of the 150 basis points hike, while four members opted for a 100 basis points change and one member preferred to raise the rate by 50 basis points. All other monetary policy tools were left unchanged: The asymmetric corridor was maintained at plus 100 and minus 700 basis points around the MPR, the cash reserve ratio at 27.5%, and the liquidity rate at 30.0%.

In deliberating its decision, the Committee noted a further rise in upside risks to the inflation outlook due to the war in Ukraine, and a resurgence of Covid-19 in China and associated lockdowns. Rising energy and food prices pushed domestic inflation up to 16.8% in April, marking the third consecutive uptick in price pressures. The quick rise in inflation led the Central Bank to abandon its historically cautionary stance and adopt a more proactive stance in its fight against intensifying price pressures. Despite this, the Committee deemed it necessary to still adopt “an accommodative approach to development finance initiatives that have supported the growth of the economy and sustained recovery.” Turning to the economy, available data points towards a moderation in economic growth due to internal and external shocks.

The CBN turned more hawkish as the upward pressure on prices continued, which could hamper economic growth. Moreover, the Bank noted that inflationary forces also stem from domestic developments as “emerging evidence shows that money demand pressure is on the rise and is unlikely to abate until the 2023 general elections are concluded.”

The next meeting is scheduled for 26 July.

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