In brief
- At the end of its fourth meeting in 2023, and the first meeting under Nigeria’s new administration, the Monetary Policy Committee (MPC) delivered a token hike of 25bps in its Monetary Policy Rate (MPR) to 18.75% as we anticipated. The MPC also narrowed the asymmetric interest rate corridor to +100bps/-300bps around the MPR (vs +100bps/-700bps previously).
- The MPC justified its decision to implement a token hike in the MPR by citing the elevated upside risk to inflation against a wait-and-see position amidst the surprised modest uptick in the June 2023 inflation rate. Furthermore, we perceive the token hike as reflecting the Committee’s desire to play a balancing act between curbing inflation and promoting economic growth, making it difficult to envisage aggressive policy tightening in the MPC meetings ahead.
- On the tightening of the asymmetric interest rate corridor, the monetary authorities aim to encourage deposits from commercial banks and steadily reduce the excess Naira liquidity in the system as broad money supply grew strongly YTD in June 2023.
- In our opinion, the perennial structural issues remain a major driver of price pressures in Nigeria via the shocks to supply and distribution channels. We believe a correction of these structural issues would be required in addition to the ongoing policy adjustments to lower inflation.
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