CBN raises Monetary Policy Rate to 14% and other decisions of the July 2022 MPC – Coronation Merchant Bank
Eleven (11) members of the monetary policy committee were in attendance at the July 2022 meeting. After a detailed deliberations, the eleven members arrived at the following decisions.
Decision
• Raise MPR to 14.0% (6 out of 11 members voted to raise MPR by 100bps)
• 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 broad outlook for the global and domestic economy remains hazy with uncertainties associated with headwinds such as the global disruption to supply chain due to the ongoing Russia-Ukraine crisis and the lingering impact of COVID-19. Regarding the domestic economy, the MPC noted that the available data on key macroeconomic indicators suggest the possibility of a subdued growth outlook in 2022.
The MPC noted with concern the continued aggressive movement in inflation despite the rate hike (150bps) at its last meeting. Headline inflation rose by 89bps to 18.6% y/y in June ’22. This is the highest since January ’17, driven by increases in food (110bps) and core (85bps) inflation.
The committee noted the moderate decline in 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 14.1% and 42.6% respectively in June ‘22. In addition, MPC noted with concern the slight uptick in NPL ratio to 5% in June ’22. The committee urged the CBN to sustain its tight prudential regime to ensure that NPL is brought well below its prudential benchmark of 5%.
Regarding the MPC’s stance, the members had a unanimous view and did not consider either loosening or retaining rates at the meeting. The MPC noted that loosening could worsen the existing liquidity condition in the economy and further dampen money market rates necessary to stimulate savings and investments. Furthermore, it could trigger the weakening of the exchange rate which could passthrough to domestic prices. The committee believes that a hold stance may suggest the MPC/CBN is not responding to global and domestic price developments, as inflation figures continue to trend upwards.
On tightening, the MPC believes that this would signal a strong determination to address its price stability mandate and portray the committee’s sensitivity towards the impact of inflation on vulnerable households as well as the need to boost disposable income. Furthermore, it should assist with narrowing the real interest rate gap. To ensure that GDP output remains in focus, the MPC advised the CBN to continue to use its development finance tools to support the economy.
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