In brief
- At its March 2023 meeting, Nigeria’s Monetary Policy Committee (MPC) voted by a majority decision to increase the monetary policy rate by 50 basis points to 18.0%, citing continued upside risk to headline inflation.
- The authorities noted that the policy on Naira redesign and cash withdrawal limit have significantly reduced the currency-outside-banks, with an expected improvement in the effectiveness of monetary policy.
- While we view the main drivers of Nigeria’s inflation as non-monetary, the MPC continues to believe in the power of rising interest rates to control inflation. We think the Committee’s preference for rate hikes, albeit still below the headline inflation, is motivated by the need to curb the second-round effect of the structural and cost-push drivers of Nigeria’s inflation.
- We expect the headline inflation to remain sticky above 20% in the near-term as a new government (to be inaugurated in May 2023) considers the removal of fuel subsidies. This outlook suggests that the MPC will remain hawkish in the near-term as the Committee will seek to counter the price shocks from the expected subsidy removal, potentially by late-2023.
Downloads
Download Full Report