By Melvin Onwubuke
The Central Bank of Nigeria will on Monday and Tuesday hold the Monetary Council Policy meeting under Yemi Cardoso, with many analyst projecting an increase in the monetary policy rate.
According BusinessDay, the CBN has made use of the Open Market Operations to control its monetary policy, in its bid to tackle inflation since Cardoso assumed office in September, 2023.
The country’s inflation had increased to 29.90 percent in January 2024 compared to the preceding 28.92 percent in December 2023. (Data from NBS)
Economist and analyst have been projecting the likely outcome of the meeting, particularly as it regards the interest rate adjustment.
According to Razia Khan, managing director, chief economist, Africa and Middle East Global Research at Standard Chartered Bank “We expect a minimum of 300bps of tightening in the Monetary Policy Rate, and possibly as much as 550bps, taking it to 24.25 percent at end-Q1-2024 (from 18.75 percent; 23.75 percent previously).
“Ideally, these need to be replaced by regular, predictable liquidity-draining measures, to deal with Nigeria’s structural excess liquidity overhang. Monthly Federal Accounts Allocation Committee distribution among Nigeria’s three tiers of government now shows a pronounced boost related to FX depreciation, adding to Nigeria’s excess NGN liquidity challenges.”
She pointed out “With January inflation accelerating to 29.9 percent year-on-year, and USD-NGN touching new parallel-market highs, we expect significant policy tightening and the announcement of de facto system-wide tightening measures. We think both steps are needed to attract greater foreign portfolio investment and anchor inflation expectations. How much policy tightening will depend on the near-term inflation target.”
Meanwhile, Oluwaseun Dosunmu, head of research Parthian Securities expects an increase in the MPR to at least 20% to curtail pressure in the FX market.
“However, I’m concerned about that decision because an increase in MPR would make the finance cost for businesses increase and reduce their profitability” he noted.
Ronke Akinyemi, head of global markets at Parthian Partners, said: “We expect the MPC to raise rates. Since the last MPC meeting held in July last year, we’ve seen inflation go higher. One of the ways of combating inflation is by raising interest rates. The DMO has also been raising debt at rates higher than the current MPR rate which shows that they are positioning ahead of next week’s MPC.”
