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As expected, the Monetary Policy Committee (MPC) at the end of yesterday's meeting, unanimously elected to: 

  • Retain the Monetary Policy Rate (MPR) at 11.5%.
  • Retain the Asymmetric corridor around the MPR at +100/-700bps.
  • Retain the Cash Reserve Ratio (CRR) at 27.5% and
  • Retain the Liquidity Ratio (LR) at 30.0%.

In our view, the decision seems reasonable, as the CBN remains squeezed between the necessity to sustain the real economy, as growth remains fragile and to curb elevated inflation, which remains well above the CBN's target of 6%-8%. Therefore, hiking rates, in recognition of increased upside risk to prices and mounting external sector pressures would further constrain economic growth, while a rate cut is likely to intensify inflationary pressures and amplify the currency risk.



Market Impact

Fixed Income: The outcome of the MPC meeting is unlikely to result in any fundamental change in the fixed income market. We expect sentiments to remain bearish, as the negative real return, successive rate hikes at auctions and elevated fiscal deficit strengthen the case for sustained yield increase in the near term. As such, we think the steepening of the NGN yield curve will persist.

Equities: Domestic investors have been selling down their equity holdings in response to the rising yields in the fixed income market and we do not expect any change in the recent trading pattern considering investors do not expect a reversal in the uptick in yields.  In our view, trading in the market will remain choppy as investors cherry-pick fundamentally sound stocks.



We project the economy will grow by 2.3% in Q2-2021. On the flip side, we forecast m/m headline inflation of 1.16% in May, which translates to a y/y reading of 18.10% (April 2021: 18.12%). The CBN finally adopts the I&E window rate as the new official exchange rate for the country. This should help simplify Nigeria's intricate FX regime and provide a slight boost to the government's oil revenue. Looking ahead, we forecast the CBN will likely devalue the I&E rate by c.5-7% by year-end to unlock FX liquidity, attract new FPI flows and curb the current account imbalances, which is projected to reach US$10.80bn (2.1% of the GDP) in 2021.


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