According to the publication by the Governor of the Central bank of Nigeria (CBN) on the CBN website, the Monetary Policy Committee (MPC) met on November 21-22, 2022. The meeting was attended by 11 committee members. The committee considered the ongoing slowdown in the global economy, mainly due to the continued rise in energy prices, supply chain shortages, rising inflation, food crisis and a sharp rise in interest rates leading to tighter external financing conditions. Oil market volatility, driven by OPEC and US government policy stance, is also creating significant uncertainty in the market, making overall direction relatively unclear. In addition, global trade fell significantly in 2022 and the outlook for 2023 looks rather bleak. Global public and private debt portfolios remain high, and in some cases growing, as various countries around the world borrow to stay afloat. The committee assessed these and other developments in the global and national economy and the outlook for the remainder of the year and the first quarter of 2023.
According to the committee the growth in global production continued to be restrained by familiar obstacles related to the war in Ukraine, China's COVID-19 policy, and continued normalization of developed country monetary policy.
All of this combined has led to skyrocketing energy prices, historically high price increases in several countries and reduced capital market investment in emerging market economies. With the war in Ukraine showing no signs of easing anytime soon, related turmoil in energy and commodities markets is likely to continue into 2023.
China's zero-COVID policy and lockdowns in major industrial cities are severely disrupting the smooth functioning of the global supply chain and increasing the risk of a global recession that would significantly delay the recovery of several fragile economies. For example, the International Monetary Fund (IMF), after downgrading its rating for 2022 and 2023 several times, left global output growth at 3.2% for 2022 but further lowered its forecast for 2023 to 2.7%, compared to 2.9 percent expected in July 2022.
Inflation in some advanced economies is expected to remain high in 2022, despite gradual rate hikes by some central banks in those economies. This is due to persistently high energy prices related to the Ukraine war and ongoing disruptions in global supply chains. Emerging Markets and Developing Markets (EMDES) inflation is expected to remain elevated for other reasons, including continued pressure on exchange rates, falling capital inflows and various legacy issues. Global financial markets are witnessing a gradual slowdown in activity in some stock markets. This is because investors benefit from rising bond yields in developed markets where interest rates continue to rise. Global financial conditions could therefore further tighten as risk-averse investors rebalance their portfolios.
In view of the above prevailing changes in the global economies the Monetary Policy Committee (MPC) noted that despite the last three significant rate hikes in a row, inflation remains on an upward trend, albeit at a slowing pace. However, so options were considered to further stimulate the economy. In this MPC, therefore, the options considered mainly consisted of maintaining or further tightening the policy rate. The easing option was not considered as it would seriously erode gains from the last three rate hikes. Therefore, the committee voted unanimously to increase the Policy Monetary Rate (MPR).
Nine (9) members voted to increase TPM by 100 basis points and 2 members voted to increase TPM by 50 basis points. In summary, the MPC voted to:
I. Raise the MPR to 16.5 percent;
II. Maintain the asymmetric corridor of +100/-700 basis points around the MPR;
III.Leave CRR at 32.5%; and
IV. Keep the liquidity ratio at 30 percent.