Oh Inflation.

Earlier today, the CBN governor announced the decisions of this 75th Monetary policy Committee (MPC) meeting, as expected, the MPC voted 9-3 to resumed monetary tightening citing; fiscal imbalances, rising global commodity prices and currency stability as its primary basis for the hike. In what could be considered a strong policy statement, the MPC increased its benchmark Monetary Policy Rate (MPR) by 100 basis points (bp) to 7.50%. The key decisions made at the meeting include;

·         Raising MPR by 100bps to 7.50%

·         Maintaining the symmetric corridor at ±200 bps MPR, thus bringing the Standing Deposit Rate (SLR) and Standing Lending Rate(SDR) to 5.50% and 9.50% respectively

·         Maintaining the Cash Reserve Ratio (CRR) for banks at 2%.

·         Maintaining the liquidity ratio by at 30%.

·         extending its guarantees for all inter-bank transactions, all commercial bank foreign credit lines and all pension funds placements with commercial banks to September 30, 2011

While I anticipated the upward adjustment of the Monetary Policy Rate (MPR) and retention of the symmetric band around, I was surprised by the aggressiveness hike in the MPR and the majority with which the committee reached most of its decisions (9-3). It appears that the MPC was more concerned about the impact of the Fiscal Policy and is on a collision course with the FG. I believe, that in addition to the recently passed budget, the impact of this development on the debt and equity markets will be much more far reaching than I had anticipated. Overall, it buttresses my view that investors are probably better off taking refuge in the money market while monitoring developments elsewhere as the wide range of factors, ranging from AMCON to outlook for government borrowing, that have a bearing on direction of asset prices has made overall outlook a lot murkier. 


Mandela Toyo