Amidst mounting concerns over Nigeria’s economic stability, particularly the persistent rise in inflation, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) convened its inaugural meeting for the year on February 26th and 27th, 2024.

The committee, comprised of twelve members, deliberated on the necessary steps to address the prevailing economic challenges and announced several key decisions aimed at tightening monetary policy.

The decisions are as follows:

Monetary Policy Rate (MPR) Increase: The committee opted to raise the Monetary Policy Rate by 400 basis points, pushing it to 22.75 percent from its previous level of 18.75 percent.

Adjustment of Asymmetric Corridor: The MPC adjusted the asymmetric corridor around the MPR to +100/-700 basis points from +100/-300 basis points.

Increase in Cash Reserve Ratio (CRR): The Cash Reserve Ratio was elevated from 32.5 percent to 45.0 percent.

Retention of Liquidity Ratio: The Liquidity Ratio was retained at 30 percent.

These decisions were motivated by the prevailing inflationary pressures, exchange rate instability, and projections of future inflation trends. The Committee expressed deep concern over the sustained upward trajectory of inflation and emphasized its commitment to curbing this trend.

While acknowledging the trade-off between promoting output growth and combating inflation, the MPC stressed the importance of maintaining low and stable inflation for sustainable economic expansion.

The transition to an inflation-targeting framework was deemed crucial in addressing inflationary pressures, with the committee commending the fiscal authorities for their support in this regard. The committee weighed the options of maintaining the status quo or increasing the policy rate to counter inflationary pressures, ultimately opting for the latter.

Headline inflation surged to 29.90 percent in January 2024, up from 28.92 percent in December 2023, driven by increases in food and core inflation. Factors contributing to inflationary pressures included exchange rate pass-through, escalating energy costs, high fiscal deficits, and security challenges in key food-producing regions. Additionally, global factors such as tight financial conditions and geopolitical tensions posed significant upside risks to domestic inflation.

Despite inflationary concerns, the Nigerian economy exhibited modest growth, with real GDP expanding by 3.46 percent in Q4 2023, driven by improvements in both the oil and non-oil sectors. Projections for 2024 indicated varying growth forecasts by different entities, with the CBN forecasting growth at 3.38 percent, the Federal Government of Nigeria (FGN) at 3.88 percent, and the International Monetary Fund (IMF) at 3.00 percent.

The CBN said on the external front, gross external reserves witnessed an increase to US$34.51 billion as of February 20, 2024, compared to US$32.23 billion at the end of January 2024. This improvement was attributed to reforms in the foreign exchange market and an uptick in oil production, among other factors.

While the MPC’s decision to raise the MPR was applauded by experts, concerns were raised regarding the elevated Cash Reserve Ratio and liquidity ratio.

Financial analyst Kelvin Emmanuel noted that Nigeria’s CRR, currently at 45 percent, significantly surpasses the global benchmark average of 15 percent recommended by the Bank for International Settlements. He warned of potential challenges for banks, including increased non-performing loan ratios, amidst efforts to meet regulatory requirements and improve asset quality.

“Asking the banks to park 45% of all deposits with a quick, current, and operating cash flow ratio at 30% in the same year where you want them to recapitalize their minimum capital requirement and improve their asset quality is quite the stretch. The weighted Non-performing loan book average will definitely rise above 7%,” he said.

The cryptocurrency market has been firing on all cylinders, with Bitcoin (BTC) leading the charge. On Tuesday, BTC surged above $60,000 for the first time in more than two years, catching traders off guard who had been hoping for a significant pullback to allocate funds into the top crypto. While the rally continued for cryptocurrencies, stocks traded in a holding pattern as investors practiced patience following last week’s run-up to new record highs for the S&P and Dow.

Bitcoin’s Remarkable Rally

Data provided by TradingView shows that Bitcoin bulls extended Monday’s rally into Tuesday trading, pushing BTC to a high of $57,660 in the afternoon—its highest price since December 3, 2021. At the time of writing, Bitcoin trades at $60,259 representing a 10.1% increase on the 24-hour chart.

In 2009, Bitcoin emerged as a novel digital currency. Back then, there were no exchanges like the ones we have today. The BitcoinTalk forum played a crucial role in facilitating early transactions. The first recorded exchange occurred when forum member NewLibertyStandard set up the New Liberty Standard Exchange. Another user, Sirius, exchanged 5050 BTC for a mere $5.02 via PayPal. This pegged the initial Bitcoin price at approximately $0.00099 per BTC.

In 2010, Bitcoin’s price remained below $1 throughout the year. Its highest value was a meager $0.39. However, this was also the year of an iconic event: Laszlo Hanyecz paid 10,000 BTC for two pizzas from Domino’s—a transaction now celebrated as “Bitcoin Pizza Day.”

Several factors are influencing this market sentiment and surging cryptocurrency prices:

Just like any other asset, supply and demand play a significant role in determining crypto prices. When more people want to buy a particular cryptocurrency compared to those who want to sell it, the price tends to rise. Conversely, if more people want to sell than buy, the price theoretically decreases.

Supply dynamics vary across different tokens. Some cryptocurrencies have a fixed supply (e.g., Bitcoin), while others do not (e.g., Ethereum). Market participants often view tokens with fixed supplies as having less selling pressure.

While many crypto protocols do not generate profits like traditional stocks, there are other factors that indicate how “healthy” a protocol is and how fast it is growing. Fundamentals include aspects such as network adoption, development progress, security features, and utility within decentralized applications (dApps).

Market Sentiment refers to how investors perceive the overall market conditions and specific cryptocurrencies. Positive news, regulatory developments, partnerships, or endorsements can boost sentiment. Conversely, negative news or regulatory uncertainty can lead to bearish sentiment.

Technical analysis plays a crucial role in crypto trading. Traders analyze price charts, patterns, moving averages, and other technical indicators to make informed decisions. Technical forces influence short-term price movements.