Post Monetary Policy Committee Meeting March
The second (2nd) Monetary Policy Committee (MPC) meeting in 2024 held on the 25th and 26th of March. The committee reviewed recent economic and financial developments as well as assessed risks to the outlook. Following its deliberation, the committee decided to tighten the MPR by 200bps to 24.75% from 22.75% in February 2024. This move reflects the Central Bank of Nigeria’s (CBN) efforts to curb inflation and attract Foreign Portfolio Investment (FPI) inflows. In addition to raising the MPR, the Committee also adjusted the Asymmetric corridor to +100/-300 basis points around the MPR, from the previous setting of +100/-700 basis points at the last meeting, as well as hiking the Cash Reserve Ratio (CRR) of merchant banks from 10% to 14%.
In summary, the committee decided to:
- Hike MPR by 200bps to 24.75%.
- Adjust Asymmetric Corridor to +100/-300 basis points around the MPR.
- Maintain Cash Reserve Ratio (CRR) of Commercial banks at 45%.
- Raise the CRR of Merchant banks from 10% to 14%.
- Sustain Liquidity Ratio at 30%
Capital Market Outlook
Equities Market
We believe that the sustained interest rate hike would negatively impact the equities market performance as investors look towards the fixed income market for higher yields. Consequently, we expect the market to extend its bearish run in the short term. However, given the cheap valuation in the market, we think that this presents an entrance opportunity for investors to play in fundamentally sound tickers, in anticipation of the release of Q1:2024 earnings results.
Fixed Income Market
Here, we still maintain our outlook of a bear flattening yield curve, as investors take advantage of higher yields at the short end of the curve, following the Central Bank’s campaign against excess liquidity in the system.
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