In brief
- The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) expectedly hiked the policy rate by 200bps to 24.75% at the March 2024 MPC meeting, in addition to raising the lower bound of the policy rate corridor by 400bps.
- In our February 2024 MPC Note – A New Sheriff in Town – we opined that the authorities would seek to sustain higher domestic interest rates as a bait for foreign portfolio inflows. Consequently, we anticipated additional policy rate hike of between 150bps – 250bps at future meetings. The latest decision to hike the policy rate by 200bps broadly aligns with our expectation and evokes a feeling of the final call on rate hikes, barring unforeseen elevation in inflation and FX risks.
- In our view, the option for a “pause” on rate hikes at the March 2024 meeting suggests that the MPC may have observed near-satisfactory levels of liquidity squeeze after the February 2024 tightening. This consideration in addition to the latest tightening suggests that the authorities likely perceive the post-March MPC policy stance to be sufficiently restrictive. Our views were further deepened by the MPC’s expected moderation in price pressures from May 2024 onwards with a forecast “significant” disinflation by year end.
- In our update note on the February 2024 MPC decision, we argued that the 400bps widening of the lower bound around the policy rate will mute the impact of the policy rate hike as the resultant stagnation of the Standing Deposit Rate (SDR) will restrain overnight deposit at the Central Bank. However, the MPC’s latest decision to reverse the previous adjustment restores the lower bound to -300bps in addition to the 200bps hike in the policy rate. Consequently, we argue that the 400bps lift to the lower bound of the policy rate corridor translates into a cumulative rate tightening of 600bps at the March 2024 MPC meeting and likely pushes towards a sufficiently restrictive territory, for now.
Downloads
Download Full Report