Highlights

The Monetary Policy Committee in her last meeting for 2022 unanimously decided to increase the monetary policy rate (MPC) by 100 basis points to 16.50% from 15.50% – representing a fourth consecutive rate hike. The cumulative interest rate hike by the apex bank in 2022 is 500 basis points.

The decision to hike was based on the outcome of a poll where nine (9) members agreed to a 100 basis points increase, while two (2) members voted to raise the MPR by 50 basis points.

The Committee’s Decision

The decision to hike rate was to further consolidate the progress made to combat inflationary pressures, especially given the third consecutive month-on-month decline in October 2022.

In addition to consolidating the gains, the Committee opted for a rate hike to further narrow the negative real interest rate, restore investor confidence and improve market sentiment. However, the Committee guided while there was the need to maintain a hawkish stance, the implementation had to be done at a slow pace so as not to dampen the steady economic growth achieved over the past few quarters.

Potential Implications for the Financial Markets

Fixed Income: we expect yields in the fixed income market to reprice aggressively. We expect to see a steeper yield curve as investors shorten duration to capitalise the gains of a rising interest rate environment.

Equities Market: we expect the latest policy move by the MPC to erode the little gains recorded in the market over the past few days, as domestic investors hunt for higher yields in the fixed income market. However, we believe investors should position in fundamentally sounds stocks with attractive dividend yields. Notably, we favour the banking stocks at this time because the current macro environment is net positive to the banks.

Please follow the link “Hike aimed at reining in inflation, stemming the Naira slump” to view the whole report.

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