MPC Decision – May 2022

Dear All,

Ten (10) members of the committee were in attendance.

Decision (unanimous)

Six out of the 11 members voted to;

  • Retain MPR at 13.0%
  • Retain the asymmetric corridor of the MPR at +100 / -700 basis point.
  • Retain CRR at 27.5%
  • Retain liquidity ratio at 30%.

The MPC noted that the available data on key macroeconomic indicators suggest that the recovery of output growth will continue, but at a more subdued pace considering the unfolding domestic and external shocks to the economy.

The MPC noted the sharp rise in inflation in both the advanced and emerging economies driven by rising aggregate demand and by disruptions to the global supply chain due to the Russia-Ukraine crisis. As for the domestic economy, the committee expects the upward trend to continue in light of the buildup of increased spending related to the 2023 general elections. Headline inflation stood at 18.92% y/y, in April ’22.

The committee noted the strong performance of the equities market within the review period. In the banking system, the capital adequacy ratio and the liquidity ratio remained above their prudential limit of 14.6% and 43.7% respectively. In addition, MPC noted the sustained stability in the banking system evidenced by the NPL ratio which stood at 5.3% in April ’22, compared with its prudential limit of 5.0%.

Considering this, the committee decided to shift from its historically cautious approach to interest rate to a policy rate hike, while still adopting an accommodative approach to development finance initiatives that have helped the growth of the economy and supported recovery. The committee is of the view that the interest rate of the development finance initiatives of the CBN should remain at 5% at least till March ‘23.

The MPC noted that loosening in the face of rising policy rate in advanced economies may result in sharp rises in capital outflow, faster dry up of credit lines, and further inflationary pressure. The MPC noted that a hold stance could strengthen the perception that the CBN has abandoned its primary mandate of taming inflation.

The committee believes that tightening would help moderate the inflationary pressure and exchange rate depreciation as well as moderate the speed of capital flow reversals, provide an incentive for foreign capital inflows, and sustain remittances. Furthermore, tightening could moderate the FGN’s domestic borrowing as government debt-service-to-revenue ratio has increased considerably in recent times and threatens debt sustainability.

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