MPR, CRR hike: How MPC members voted to tighten monetary policy, ensure price stability

…As increased inflation rate may trigger another hike in rates ahead of next meeting

More details have emerged from the last Monetary Policy Committee (MPC) meeting held in February that raised the Monetary Policy Rate (MPR) and Credit Reserve Ratio (CRR).

The Central Bank of Nigeria (CBN) on Tuesday released the minutes from the deliberations of the last MPC meeting before it arrived at its Policy decisions.

Nigerian NewsDirect recalls that the 12-member committee hiked the Monetary Policy Rate (MPR) by 400-basis-points to 22.75 percent and the cash reserve ratio to 45 percent, a record hike that took several analysts by surprise.

However, Nigerian NewsDirect observed from the minutes issued yesterday that all members of the committee agreed to tighten monetary policy citing the need to mop up excess liquidity, reduce inflationary pressures and ensure price stability.

The members however differed on how the rates should be hiked with the CBN Governor, Olayemi Cardoso and Aloysius Ordu casting their vote for a bigger increase at the last meeting.

The CBN Governor argued that hiking rates substantially will help steer Nigeria towards achieving positive real interest rates, a crucial goal to stimulate savings and investment within the domestic economy.

“This strategic move also holds the potential to attract the capital inflows necessary to enhance liquidity in the foreign exchange market and bolster the currency in the immediate term,” Cardoso said.

“While cognisant of the potential drawbacks of a contractionary monetary policy stance, such as impacting output growth and lending rates, constraining credit availability and affordability to small-scale businesses and consumers, as well as affecting government borrowing costs and liquidity management, I believe these short-term sacrifices are crucial in our pursuit of achieving price stability and sustained economic growth,” he said.

Cardoso however admitted that the current inflationary pressures are multifaceted and not solely monetary in nature and called for a “comprehensive approach beyond monetary policy.”

“Given the imperative to curb inflationary pressures, which could pose social challenges and impede long-term growth prospects, I am persuaded that the MPC must adopt an assertive stance by tightening monetary policy measures, with a medium-term inflation target of 21.40 percent by the end of 2024 in mind.

“Therefore, I cast my vote in favour of increasing the Monetary Policy Rate (MPR) by 425 basis points to 23.0 percent, raising the Cash Reserve Ratio (CRR) by 1250 basis points to 45.0 percent, and adjusting the asymmetric corridor to +100 and -500 basis points around the MPR,” Cardoso noted at the last meeting.

Aloysius Ordu, a member of the committee voted to raise the MPR by 450 basis points to 23.25 from 18.75 percent , Cash Reserve Ratio from 32.5 percent to 45 percent, adjust the Asymmetric Corridor around the MPR to +100/-700 and  to retain the Liquidity Ratio at 30 percent.

Ordu noted that a robust revival of Nigeria’s economy is needed simply to prevent the number of poor people from increasing beyond the current 133 million multi-dimensionally poor in 2022 (National Bureau of Statistics).

“Based on the performance of comparable lower middle-income countries, even an ambitious growth target of 6 to 7 percent throughout the next two and half decades would still leave millions of poor people by 2050, when Nigeria will rank as the third most populous country in the world. More troubling, if growth continues at around the current 3 percent a year, the number in absolute poverty would likely double by 2050.

“On monetary policy, there was heightened expectation at the February MPC meeting, especially as the current sustained price rise is wreaking havoc on the living standards of people. It is imperative to break the cycle of inflation as a prerequisite for sustained economic growth and to stabilise the exchange rate, following the Naira’s sharp depreciation in recent months,” He said.

Another member of the committee, Bala Bello voted to tighten the monetary policy stance further, by raising the monetary policy rate (MPR) by 400 basis points from 18.75 percent to 22.75 percent, increasing the Cash Reserve Ratio (CRR) by 1,250 basis points from 32.5 per cent to 45.0 percent, retaining the Liquidity Ratio at 30 percent, and adjusting the asymmetric corridor from +100/-300 basis points to +100/-600 basis points around the MPR

He advised the Apex Bank to closely monitor the markets and evaluate unfolding outcomes to prevent unintended consequences of well-intentioned policy actions.

Bello also noted that further tightening of the monetary policy stance will, in my opinion, anchor inflation expectations and help attract the much-needed foreign exchange inflows and accretion to reserves while triggering a downward inflation trajectory.

Bamidele Amoo who voted to raise MPR by 400 basis points from 18.75 percent to 22.75 percent and CRR to 45.0 percent also expressed major concerns on inflation.

Amoo opined that the Government ensures that the Compressed Natural Gas (CNG) programme designed to provide gas as alternative motive fuel for transportation is aggressively implemented.

“Improvement in electricity supply will also reduce the amount of fuel on demand in the economy, and thereby moderate energy price input to the local manufacturers,” He said.

Others who voted to raise the MPR by 400 points include Jafiya Lidya, Muhammad Sanni Abdullahi, Emem Usoro and Mustapha Akinkunmi.

Murtala Sabo – 100 points, Pauline Odinkemelu, Lamido Yuguda and Philipo Ikeazor – 300 points,

A member of the committee citing foreign remittances as a measure to curb inflationary pressures commended the strategic alliance with the Nigerian National Petroleum Company Limited noting that the alliance is already yielding results.

Meanwhile, analysts have speculated that the MPC members may hike the rates at their next meeting.

They identified the joint stance of the committee to tighten monetary policy in combating inflation as a major factor noting that since the committee last met in February, inflation has jumped to 31.7 percent.

With a target of 21.40 percent inflation rate by the end of 2024, Cardoso had earlier urged the MPC to maintain an assertive stance in choosing tightening monetary policy.

In February 2024, Nigeria’s headline inflation rate rose to 31.70 percent , up from 29.90 percent in January 2024, marking an increase of 1.80 percent.

Comparatively, on an annual basis, February 2024’s inflation rate was 9.79 percent higher than the 21.91 percent recorded in February 2023.

Additionally, the month-on-month headline inflation rate in February 2024 reached 3.12 percent , an increase of 0.48 percent from January 2024’s rate of 2.64 percent.

This indicates that the pace at which average prices rose in February 2024 exceeded the rate of price increase in January 2024.