Abstract
1. This statement provides a factual update on developments since the issuance of the staff report on January 17, 2023. The additional information does not change the thrust of the staff appraisal.
1. This statement provides a factual update on developments since the issuance of the staff report on January 17, 2023. The additional information does not change the thrust of the staff appraisal.
2. The Central Bank of Nigeria (CBN) raised its benchmark policy rate by 100 basis points to 17.5 percent on January 24—the fifth hike since the beginning of the current tightening cycle. The Monetary Policy Committee indicated that the economy still faces residual inflation risks and conveyed its intention to sustain the current policy stance until inflation is further reined in. In December 2022, CPI inflation (year-on-year) declined for the first time in 11 months to 21.3 percent—in line with staff’s projection (21 percent) in the staff report—although there was some pick up in annualized month-on-month CPI inflation led by food prices.
3. On January 27, Moody’s Investors Service (“Moody’s”) downgraded Nigeria’s sovereign rating from B3 to Caa1. This is a second downgrade by the agency after the downgrade in October 2022 from B2 to B3. The country’s deteriorating fiscal and external positions were cited as main factors behind the rating action. Fitch and S&P ratings stand at B-. On January 30, 2023, the first trading day since the downgrade, Nigeria’s sovereign spread increased by 53 bps to 784 bps.
4. On January 29, the CBN extended the deadline for the exchange of high-denomination naira notes by 10 days to February 10. Since its roll-out on December 15, 2022, about 1.9 trillion naira worth of old notes (70 percent of all cash held outside banks) were brought back as deposits (a requirement for the note exchange). In a related move, the CBN tightened cash withdrawal limits on January 9, 2023, to prevent those deposits from immediately flowing back as cash outside banks. After February 10, 2023, old notes will cease to be a legal tender and no longer be accepted by banks. However, CBN has introduced a 7-day grace period (until February 17), during which old notes will be accepted at CBN’s branch offices.