Central Bank of Nigeria


MONETARY POLICY COMMUNIQUE NO.150
Date: Tuesday, 27 February 2024
Ref: CBN/MPC/COM/150/293

MONETARY POLICY RATE INCREASED BY 400 BASIS POINTS TO 22.75
PERCENT.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) held
its first meeting for the year on the 26th and 27th of February 2024 to decide on
the appropriate course of monetary policy going forward. All twelve (12) members
of the Committee attended the meeting.

Decisions of the MPC
The Committee decided to further tighten monetary policy as follows:
1. Raise the MPR by 400 basis points to 22.75 from 18.75 per cent.
2. Adjust the asymmetric corridor around the MPR to +100/-700 from
+100/-300 basis points.
3. Raise the Cash Reserve Ratio from 32.5 per cent to 45.0 per cent.
4. Retain the Liquidity Ratio at 30 per cent.
Considerations
The Committee’s decisions were centered on the current inflationary and
exchange rate pressures, projected inflation, and rising inflation expectations.
Members were concerned about the persistent rise in the level of inflation and
emphasized the Committee’s commitment to reverse the trend as the balance
of risk leaned towards rising inflation. The Committee, however, acknowledged
the trade-off between the pursuit of output growth and taming inflation but was
convinced that an enduring output expansion is possible only in an environment
of low and stable inflation.
Members noted the decision to transit to an inflation targeting framework as
essential to addressing the persistence of inflationary pressures in the economy
and commended the fiscal authority for their invaluable support.
In the opinion of the Committee, the options available for decision was to either
hold or hike the policy rate to offset the persisting inflationary pressure.
Central Bank of Nigeria


MONETARY POLICY COMMUNIQUE NO.150
Considering the option of a hold policy, the evidence revealed that previous
policy rate hikes have slowed the rise in inflationary pressure but not to a
desirable extent. Members considered various scenarios of hold and hike, and
concluded that, inflation could become more persistent in the medium-term
and thus pose more regulatory challenges if not effectively anchored. The
balance of the argument thus leaned convincingly in favour of a significant
policy rate hike to drive down inflation substantially.
The MPC also deliberated extensively on various distortions in the foreign
exchange market including the activities of speculators, putting upward
pressure on the exchange rate with high pass-through to inflation. Members
were, however, convinced that the ongoing reforms in the foreign exchange
market will yield the desired outcome in the short to medium term. Some of these
reforms include: the unification of the foreign exchange market; promotion of a
willing buyer willing seller market; removal of all limits on margins for IMTO
remittances; introduction of a two-way quote system and the broad reforms in
the BDC segment of the market to restore stability, enhance transparency, boost
supply, and promote price discovery in the Nigeria Autonomous Foreign
Exchange Market (NAFEM).
The Committee reviewed the key financial indicators of the banking system and
noted that the system remained stable. To further ensure the stability of the
banking system, the MPC called on the Bank to increase system buffers by
recapitalizing the banks to improve resilience against potential risks. Members
further enjoined the Bank to strengthen surveillance and compliance regarding
its earlier guidance on the application of foreign exchange revaluation gains.
The Committee identified non-monetary factors driving inflation such as the
persisting insecurity and infrastructural deficits and noted the role of fiscal policy
in addressing these shortfalls, while reiterating the commitment of monetary
policy support. In this regard, the Committee applauded fiscal policy initiatives
towards reducing the cost of living for ordinary Nigerians, including the ongoing
efforts to improve food supply and provide mass transit CNG buses to ease the
cost of transportation; and the civil service reforms to improve the efficiency of
government amongst others.


Central Bank of Nigeria


MONETARY POLICY COMMUNIQUE NO.150
Key Developments in the Domestic and Global Economies
Headline inflation (year-on-year) rose to 29.90 per cent in January 2024 from
28.92 per cent in December 2023. Food inflation increased to 35.41 per cent from
33.93 per cent while core inflation (Headline less farm produce and energy) rose
to 23.59 per cent from 23.07 per cent. The major factors driving inflationary
pressure remain exchange rate pass-through, rising cost of energy, high fiscal
deficits, and lingering security challenges in major food-producing areas. In
addition, global factors such as tight financial conditions and trade disruptions
from ongoing geopolitical tensions, remain significant upside risks to the outlook
for domestic inflation. Staff forecasts therefore indicate that inflation will remain
on an upward trajectory in the near term before commencing a descent.
Real GDP growth improved in Q4 2023 to 3.46 per cent, compared with 2.54 per
cent in the previous quarter, driven by improvements in both the oil and non-oil
sectors. The recent improvement in the oil sector was due to the combined
impact of increase in crude oil production and a relatively high price in Q4 2023.
Forecasts indicate that the economy will grow in 2024 by 3.38 per cent (CBN),
3.88 per cent (FGN) and 3.00 per cent (IMF).
Gross external reserves stood at US$34.51 billion on February 20, 2024, compared
with US$32.23 billion at end-January 2024. The improvement was driven by
reforms in the foreign exchange market and an increase in oil production
amongst others.
In the global economy, inflation is projected to continue to moderate in 2024,
but could remain above the long-term objectives of several advanced
economy central banks. Consequently, policy rates among this group of central
banks are expected to remain high in the short to medium term. The Committee
thus recognized the need to continue to put in place measures to boost investor
confidence and to attract capital inflows.
To this end, the Committee will continue to monitor developments in the global
and domestic economies to ensure that inflationary and exchange rate
pressures moderate in the near term.
The next meeting of the MPC will be held on 25th and 26th of March 2024.
Thank you for listening.
Mr Olayemi Cardoso
Governor,
Central Bank of Nigeria
27th February 2024.