MPC Meets For The Third Time In 2024, May Raise Interest Rate Again
The Monetary Policy Committee, MPC, of the Central Bank of Nigeria, which commenced its third meeting of the year on Monday, is likely to increase the benchmark rate.
While a majority of the market watchers projected that the MPC would hike the benchmark rates to combat persistent inflation.
However, some financial pundits believed that the MPC would retain the Monetary Policy Rate, as inflation had begun to accelerate at a slower rate.
In an interview with the Financial Times last week, the Governor of CBN, Dr Olayemi Cardoso, said that the members of the Monetary Policy Committee would do whatever was necessary to tame the country’s high inflation.
Cardoso indicated that interest rates would stay high for as long as necessary to tackle inflation.
In their weekly macroeconomics report ahead of the MPC, analysts at Meristem Research projected that the MPC would hike rates in line with its avowed inflation-fighting stance.
The analysts said, “During the meeting, we expect the committee to deliberate on disinflationary trends observed in advanced economies, as well as the sustained ‘high for longer’ interest rate stance employed by monetary authorities to effectively combat inflation in these economies.
“In the domestic economy, Nigeria’s inflation rate came in lower than expected in April 2024, rising to 33.69 per cent from 33.20 per cent in the previous month (marking the 16th consecutive month of inflation uptrend). This uptick is primarily attributed to increases in both the food and core indexes, driven by higher food prices and the continued depreciation of the naira.
“However, inflation moderated on a month-on-month basis, with headline, food, and core inflation showing slower upticks of 2.29 per cent, 2.50 per cent, and 2.20 per cent, respectively, compared to 3.02 per cent, 3.62 per cent, and 2.54 per cent in March.”
Meristem analysts expected at least a one per cent hike in the monetary policy rate to 25.75 per cent while maintaining other parameters at their current levels.
They, however, raised the possibility of a hold stance due to the moderation in month-on-month inflation figures and expectations of a disinflationary trend in the coming months.
During its last meeting in March, the MPC reviewed the benchmark interest rate from 22.75 per cent to 24.75 per cent, marking the second rate hike under Governor Cardoso’s tenure since his appointment on September 26, 2023.
For Cowry Asset Management Limited analysts, the MPC is more likely to increase the MPR by 0.75 per cent to one per cent.
Their weekly report noted, “At its last two meetings in 2024, the committee maintained a hawkish stance to address inflationary pressures and adjusted other policy parameters to tighten monetary conditions in the economy. However, the slow year-on-year increase in headline indicators within the last two months and the month-on-month trend reversal suggest that previous rate hikes and policy changes by the CBN are beginning to take effect on the economy.
“In the meantime, the CBN is expected to proceed cautiously with rate hikes at the next MPC meeting, potentially increasing rates by 75 to 100 basis points as part of its ongoing efforts to tighten monetary policy and control all inflation indicators.”
Analysts at Cordros Asset Management echoed similar sentiments that the MPC may increase their benchmark rate, projecting a 0.5 per cent hike.
They pointed out that aside from global central banks approaching the end of the interest rate hiking cycle, “we think the MPC has reached a point where overtightening becomes a concern even as the debate remains on what constitutes a neutral interest rate that will not hurt domestic growth.”
“As such, we think the dilemma for the committee at the meeting will remain whether to continue its rate hike to further dampen the rising inflation trajectory or adopt a hold stance to observe emerging developments and allow for the impact of the last rate hikes to permeate the economy.
“In our view, given that the end of rate hikes by systemic global central banks is in sight amid sticky domestic inflation, we think the MPC is likely to maintain a slower rate hike at this meeting. Indeed, at the post-MPC conference in March, the CBN governor stated that maintaining aggressive tightening poses a risk to financial system stability.”
According to the analysts, the CBN governor hinted that the MPC would adopt a strategy of smaller rate hikes going forward to narrow the negative real returns amid the risks of overtightening.
“Consequently, we expect the committee to increase the MPR by 50bps and retain other policy parameters,” they stated.
