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HomeExecutive BriefMPC Rate Hikes: Analysts see investors switching from equity to fixed income

MPC Rate Hikes: Analysts see investors switching from equity to fixed income

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On Tuesday, the Monetary Policy Committee (MPC) concluded its last meeting of the year 2022. In line with our expectations, the chairman announced a 100bps hike in the country’s Monetary Policy Rate (MPR), the fourth (4th) consecutive hike in 2022, bringing total rate hikes for the year to +500bps, and the MPR at 16.5 percent.

This decision was supported by eight (8) members of the committee, with the remaining two (2) leaning toward a 50bps hike.

The MPC also voted to retain Cash Reserve Ratio (CRR), Asymmetric corridor, and liquidity ratio at 32.5 percent, +100/-700 basis points around the MPR, and 30.0 percent, respectively.

The decision of the committee comes despite the observed m/m disinflation in the last three (3) months. Nigeria’s m/m inflation rate began to descend in Aug-22, declining by a mere 5bps to print at 1.77 percent, from its Jul-22 print of 1.82 percent.

The disinflation was sustained in Sep-22 and Oct-22, with m/m inflation printing at 1.36 percent and 1.24 percent respectively, bringing the total m/m decline to 58bps.

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At the meeting, the governor cited premature, the idea of tilting toward a HOLD stance, reiterating the need to combat elevated inflation and attract further investment inflows from FPIs amid hawkish stances across major central banks.

For context, the country’s y/y Inflation rate has been on the rise since Feb-22, climbing for the eighth consecutive month to print 21.09 percent in Oct-22, 5.5ppts higher than Jan-22 print of 15.63 percent, albeit largely attributable to the economic ripples from the Russia-Ukraine crisis.

The MPC echoed its commitment to address the issue of elevated inflationary pressure in the Nigerian economy. However, we believe a sustained m/m disinflation will present a reasonable argument for members of the committee to tilt toward a HOLD in the near future.

That said, economic growth outcomes and monetary policy decisions in peer countries and advanced economies will remain critical focus points.

For the fixed-income markets, we expect an uptick in the yield environment, affecting the entire yield curve (money market & bonds). For the equities, we expect the hike to further fuel the bear market as investors continue to favour fixed-income market, and shun equities.

~United Capital Plc

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