FINANCE and economic analysts have predicted that the Monetary Policy Committee (MPC) will hike the benchmark interest rate known as Monetary Policy Rate in consideration of rising inflation in the country, while keeping an eye on growth dynamics.
The 291st Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN) is slated for Monday and Tuesday this week.
Based on a balanced analysis on the current dynamics in the global and domestic macroeconomic landscape since the last MPC meeting in March, analysts at Afrinvezt (West) Africa Limited do not expect the CBN to retain or lower the anchor rate, but , project a modest 50 basis points (bps) hike in MPR to 18.5 per cent, which, other things being equal, should cause a nudge in market yield and savings rate.
Hence, “we anticipate a mild reduction in the general household propensity to consume in line with the CBN’s expectation. However, we hold that the MPR hike alone is short of being the silver bullet to tame the runaway domestic inflation rate,” it stated.
The analysts says a combination of fiscal and monetary policy alignment, improved communication of monetary policy to the market, and a holistic approach to structural challenges (including insecurity) is the only way to tame the runaway inflation rate.
In terms of inflation outlook for May, though Afrinvest project that headline rate would ease by a muted 10bps year on year (y/y) to 22.21 percent driven by the high base year effect and the downward adjustment of transportation cost post-April’s festivity-induced markups, the goal of price and exchange rate stability is not on the horizon without a broad-based monetary and fiscal policy recalibration.
In the same way, Cowry Research sees rising inflation on an upward trajectory in 2023, giving further room to policy tightening measures by the CBN in its continued battle against stubborn inflation.
“We note that the rising inflation rate is eroding the purchasing power of Nigerians and making it more difficult for them to afford basic necessities. As such, the Central Bank of Nigeria is keeping the Monetary Policy Rate (MPR) high and selling foreign exchange to banks at a higher rate.
“For May 2023, we project a slower acceleration in headline inflation to 22.5 percent. Also, we project a possible 50bps increase in the interest rate in its May-2023 meeting,” says analysts from Cowry.
There appears a slim thicket for quantitative easing measure at the altar of growth. This is part of the expectations that the lingering foreign exchange (FX) pressures and various market dynamics will continue playing pivotal role in the policy direction of the committee.
The tightening stance was referred to at the last meeting by a member of the MPC Edward Adamu Lamtek.
He said, “these statistics lead me to the conclusion that there continues to be room for further tightening of financing conditions in the economy. I see the need to increase the intensity of sterilization primarily to dampen the impact on money supply on the renewed growth in foreign asset, to restore system liquidity to its optimal level in in consonance with the upward direction of the monetary policy rate (MPR).”
At the May 2022 MPC meeting, the CBN, in its quest to rein inflationary pressures, adopted the hawkish stand by 150bps rates hike. This became the ritual
at the last 6 meetings where rates were on the rise by 650bps to 18.00percent and keeping other parameters unchanged.
According to the analysts, notwithstanding the committee’s resolve on price stability and other inflation-driving elements, the recent inflation printing and the forecast for the continued surge in inflation numbers in 2023 provides further room for rates tweak in line with major Central Banks to abet the avoidance of capital flights out of Nigeria. The recent report from the National Bureau of Statistics (NBS) showed there was an acceleration of the headline inflation for the fourth straight month in 2023 to 22.22percent in April 2023 from 22.04percent in the previous month. This indicates a 0.18 percent points increase month on month (m/m) and the highest reading since September 2005 (24.3%).
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