Can the CBN’s interest rate hike improve investor confidence?
On the 19th of July 2022, the Monetary Policy Committee (MPC) announced a 100 basis points (bps) hike in the Monetary Policy Rate (MPR) to 14%; while maintaining the status quo in other monetary parameters.
Members of the committee were unanimous in their decision which they hoped would tame rising inflation and narrow Nigeria’s negative interest rate gap to stimulate investment flows.
Key takeaways:
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To curtail rising inflation and stimulate investment flows, the Central Bank of Nigeria’s MPC hiked MPR for a second time this year to hit 14%.
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The hike is consistent with monetary policy tightening seen worldwide as the global economy grapples with higher inflation.
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However, bond yields have been rising recently, reflecting bearish investor sentiments towards the Nigerian fixed income market. These negative investor sentiments reflect structural and fundamental issues like insecurity and loss of confidence in the Central Bank of Nigeria, which can not be fixed by simply hiking rates.
This hike was the second this year, following an initial 150bps increase to 13% in March 2022. The decision by the MPC reflects a conscious effort to keep pace with runaway inflation and further incentivise people to hold on to the naira.
Considering that this decision is consistent with the interest rate hikes across money markets worldwide, it is not surprising. As we have written about previously, there are telltale signs of a global recession, and rising inflation has prompted these interest rate hikes across
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