Important Highlights From MPC 295th Annual Meeting

The Monetary Policy Committee concluded its annual 295th meeting on the 21st of May, 2024. Certain financial decisions were made, and what are the implications of these decisions to Nigerians, investors, and business owners?

The decisions of the Monetary Policy Committee (MPC) are as follows:

• MPR:150 basis points to 26.25% from 24.75%.
• Asymmetric Corridor: Retained at +100/-300 basis points
•  CRR: Maintained at 45.00%
• Liquidity Ratio: Retain the Liquidity Ratio at 30%

What are the implications of these decisions?

The CBN prioritizes the stability of the Naira and aggressively approaches this with monetary tightening in response to the inflationary pressure, investors and business owners should expect:

• Raising the MPR by 150 basis points presents both opportunities and challenges for FX firms and BDCs.
• Higher costs of funds and a potential decline in trading volumes could squeeze profit margins.
• An increased GDP and economic expansion of 3.38% by the end of 2024
• Attraction of foreign investors, and stabilizing/Increased FX supply
• Adapting to changing market dynamics and diversifying service offerings will be crucial for FX firms and BDCs to thrive.
•  Increased lending rate %
• Increased investment rate %

Every Nigerian should expect stability in the current rate and average cost of living. 

Points to Consider

MPC observed that the main driver of inflationary pressure is food inflation. Food inflation rose from 33.20% in March to 33.69% in April. MPC also noted that the rising inflation is caused by the increased cost of transportation of farm produce, security concerns in farming communities, and infrastructure-related constraints along the distribution chain.

While domestic headline inflation rose from 33.20% to 33.69% within a month mainly driven by food and core components, it is worthy of note that headline inflation declined significantly to 2.29% in April 2024, from 3.02% in March. 

Also, according to the National Bureau of Statistics, real GDP grew by 3.46% in the fourth quarter of 2023, compared with 2.54% in the third quarter, driven by both the oil and non-oil sectors. Purchaser Management Index (PMI) opined that the economic activities will continue to grow and increase by 3.38% in 2024.

The monitoring process will continue to ensure that expectations are adequate and up to date. The MPC will reconvene on the 22nd – 23rd of July, 2024.