Analyzing the MPR outcomes

The Central Bank of Nigeria anchors the Monetary Policy rates of the financial sector. Here below are the most important information:

Headlines Current Numbers Previously
MPR 22.75% 18.75%
CRR 45% 32.5%
Liquidity Ratio 30% 30%
Asymmetric Corridor

+100 Basis Points
(CBN to Bank)

-700 Basis Points
(Bank to CBN)

+100 Basis Points
(CBN to Bank)

-300 Basis Points
(Bank to CBN)

 

The Monetary Policy goal in the scheme of economic growth and development are centered around these 4 drives”

  • Price stability
  • Foreign Exchange stability
  • Money supply stability
  • Economic development moderated by Interest rates.

Usually, these 4 Goals do not demand attention concurrently and simultanaeously, however, in Nigeria at the Moment, the pressing and burning issues are these 4, happening at the same time:

  • Inflation is at a record high of about 30% largely stimulated by FOOD INFLATION which currently is in the mid-30 percentile.
  • The Naira has depreciated since the start of the year of up to -40%
  • Money supply in the economy is at a projected high of N90.0Trillion, over 3 times the budget size.
  • Economic development has slowed down and is expected to be negative after Quarter 1/2024.

 

So how can the Central Bank Come in?

  • They raise Interest rates by exactly 400 bps to 22.75% and raise CRR to 45%
  • The also increase the downline asymmetric corridor to -700 from -300bps.

 

CBN’s Goal: Mop up liquidity in the economy including the ways and means in circulation. This way, the excess money supply mopped up will reduce the speculative dealings in FOREX. WITH THIS MOVE, Money supply and foreign exchange is achieved.

OUR OPINION: CBN may achieve a short-term win in Money supply and foreign exchange supply (However, this will be short-lived), but price stability and economic development will suffer as these two concepts require enormous liquidity (which is now being squeezed). The main cause of Inflation in Nigeria is Food & energy inflation. This requires Fiscal interventions. The Fiscal policy arm (The Ministry of Finance and other Government non-monetary agencies) must collaborate with the CBN and attack these 4 ills together and collaboratively, without this, the economic hardship occasioned by galloping inflation and slow economic activity will like overshadow the little wins in Money supply and foreign exchange stability.

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