Dear Subscriber,

It takes two to tango: The MPC played the music…

The MPC maintained its independence by increasing the MPR despite the President’s wish for lower interest rates. The committee knows fully well that monetary loosening could spell doom for the Naira in the forex markets. It moved the MPR higher by a modest 25bps to 18.75%p.a. The committee also narrowed the asymmetric corridor -100/+300 basis points around the MPR, reducing the level of money supply saturation in the money markets.

…and the markets are dancing!!!

More importantly, in response to repeated calls by the FDC Think Tank and other analysts, the CBN & DMO finally moved the stop rates on T/bills significantly higher by 621 basis points to 12.15%p.a. The Naira has gained marginally from N875/$ to N865/$ in the last 24 hours and is set to appreciate further.

But inflation might do a break dance: Pause & play!

While the markets are celebrating that the CBN seems to stick to its mandate of price stability through modest rate hikes, it will take some time for inflation to take the bait. Despite the cumulative increase in the MPR (725 bps since May 2022), inflation has remained elevated (18-year high of 22.79%). This is primarily because inflation in Nigeria is more structural than transient. We expect inflation to increase further (dance/play) on the back of recent reforms (fuel subsidy & naira devaluation) before falling rapidly (the break/pause) in 2024. Since May, PMS price has jumped by 212% to N617/litre. Transport costs rose sharply before declining due to consumer resistance.

The video link and slides show an analysis of the MPC’s decision and its implications by Bismarck Rewane on the Channel’s flagship TV News at Ten programme on July 25.

Enjoy your read!