FDC Whispers – March 28, 2024

Dear Subscriber,

The MPC continues its tightening spree

As widely expected, the monetary policy committee hiked the monetary policy rates (MPR) by 200bps to 24.75 p.a. at its meeting on March 25–26. This is the second policy rate hike in two months, totaling 600bps. Apart from raising MPR, the CRR for merchant banks was increased to 14% from 10% and the asymmetric corridor was adjusted to +100/-300 around the MPR from +100/-700. Meanwhile, other parameters were left unchanged, including the CRR of commercial banks at 45% and the liquidity ratio at 30%.

The hawkish stance of the CBN stamps the commitment of the monetary policy authorities to rein in inflation and stabilize the exchange rates, especially as effective interest rates rise. Portfolio investments are springing back up, rising 41.03% to $2.3bn in the first two months of 2024 compared to $3.9bn in 2023. Though the desired outcome of relatively stable prices will take time to manifest due to lag effects, there is some respite for Nigeria’s macroeconomy if fiscal policy moves are consolidated to support these monetary measures in the short-medium term. Conversely, stock market activities are expected to be choppy in the coming weeks as fixed-income yields become more attractive. Following the rate hike, the NGX closed negative on Tuesday, shedding 0.18%.

Will the Naira’s gain be sustained?

The naira has since February, appreciated significantly across the markets, fuelled by sanitization of the FX market, an increase in forex supply and a fall in the demand for dollars. The settlement of the $7bn verified forex backlog of forward commitments have boosted confidence and improved the credibility of the CBN. Goldman Sachs is forecasting that the naira will appreciate further to N1,200/$ by the end of 2024.

However, the pressing question remains, will the naira tumble again? The answer is No, if Nigeria continues to do the right things. Prospects for forex earnings are promising, with foreign portfolio investments on the rise. Nigeria’s key export commodities have also seen significant price surges, with cocoa trading at a record high of over $10,000 per tonne in the global market and oil prices exceeding $85pb as oil production reached an impressive 1.48mbpd in February 2024.

In this latest edition of Whispers, the FDC Think Tank takes a deep dive into recent economic developments and their impact on your business and corporate strategy.

Enjoy your read!