CBN raises MPR to 15.5% and CRR by 500bps – Coronation Merchant Bank
Decision
The twelve members unanimously voted to raise the MPR.
• Ten out of twelve members voted to raise MPR by 150bps to 15.5%
• Retain the asymmetric corridor of the MPR at +100 / -700 basis point.
• Ten out of twelve members voted to increase CRR by 500bps to a minimum of 32.5%.
• Retain liquidity ratio at 30%.
The MPC noted that the broad outlook for the global and domestic economy in the medium term remains hazy with uncertainties associated with the lingering headwinds from the Russia-Ukraine crisis, residual effect of the COVID-19 pandemic, tightening global financial conditions, high level of public and corporate debts with heightened risk and rising inflation across several economies.
Regarding the domestic economy, the MPC noted that the available data on key macroeconomic indicators suggest a subdued growth outlook in 2022. This is partly hinged on the high level of insecurity disrupting economic activities, heightened sovereign risk due to the approaching 2023 general elections, and continued upward pressure on inflation. In the near term, domestic price is expected to maintain the current upward trend considering the build-up of increased spending towards the 2023 general elections.
The committee noted the development in the equities market within the review period reflected sustained profit-taking and sell-off by investors rebalancing their portfolios in favor of higher yields in the fixed income market. In the banking system, the capital adequacy ratio and the liquidity ratio remained above their prudential limit of 13.4% and 40.1% respectively in August ‘22. In addition, MPC noted the improvement in NPL ratio to 4.8% in August ’22 compared with 5% in June ‘22. The committee urged the CBN to sustain its tight prudential regime to ensure that NPL is kept below its prudential benchmark of 5%.
The committee noted the urgency to focus on reining in inflation at this time, given its price and monetary stability mandate. Therefore, a hold or loose stance was not in consideration at this meeting. The MPC highlighted that loosening could further widen the negative real interest rate gap as investment inflows could decline further. In addition, given the aggressive rate hikes in advanced economies, loosening could result in increased capital outflows.
On tightening, the MPC noted that it could help consolidate the impact of the last two policy rate hikes (250bps) which is reflected in the slowing growth of money supply in the economy. The CBN/MPC expect this hawkish rate hike to slow capital outflows, attract capital inflows and lead to a possible appreciation of the Naira.
The MPC/CBN’s adoption of a two-pronged approach at this meeting (i.e., increasing MPR and the CRR) aims to rein in inflation. This could lead to increased borrowing costs, further tightness in the interbank market and upticks in fixed income yields (boosted by increased FGN borrowing). To read the full report, click here. Source: Coronation Merchant Bank
