Rate hike speculation grows ahead of MPC session

Onome Amuge

The Monetary Policy Committee of the Central Bank of Nigeria, has been projected to maintain an unwavering stance against the growing threat of inflation at its final meeting of the year. As inflationary pressures continue to surge, analysts foresee the MPC holding fast to its inflation-tightening measures.

The Central Bank of Nigeria announced on its website the schedule for the final meeting of its policy committee on 25 and 26 November. Since the committee last met in September, inflation has increased for two consecutive months due to the rising energy prices and recent flooding in food-producing areas.

The Monetary Policy Committee expressed significant concern over core inflation, money supply growth, fiscal deficits, and food price pressures at its September meeting. In response, the Committee increased the Monetary Policy Rate by 50 basis points to 27.25 percent. Even though headline inflation was on a downward trajectory at the time of the last MPC meeting, core inflation remained high due to rising energy costs and structural factors.

As inflationary risks loom large on the economic horizon, the CBN Monetary Policy Committee) is widely anticipated to raise the benchmark interest rate by 50 basis points to 27.75 percent, as forecasted in Cordros Capital’s pre-MPC note.

In a bid to quell inflationary fears, rein in inflation expectations, and restore positive real returns, analysts at Cordros Capital Limited foresee the MPC ratcheting up interest rates once more, even as global economies adopt a more dovish stance.

“Our expectation is a 50 bps increase in the Monetary Policy Rate (MPR) to 27.75%, with all other parameters left unchanged,” Cordros Capital Limited said. Analysts said the committee is likely to caution that inflation risks remain skewed to the upside, with festive-induced demand expected to intensify price pressures in the coming months.

The members of the MPC, tasked with stewarding the economy amidst turbulent times, face a formidable challenge as they convene for their final meeting of the year. 

As the experts at Afrinvest pointed out, the MPC is dealing with interconnected factors, including the recent inflationary pressures in major external economies, rising domestic price levels, weakening Purchasing Managers’ Index readings, bureaucratic hurdles to Dangote’s fuel supply, an expanding fiscal deficit, and a steady increase in money supply.

“Notwithstanding, the committee’s steadfast focus on curbing inflation and achieving positive real interest rate to attract foreign investment suggests that a further rate hike is imminent. Against this backdrop, we expect at least a 25bps increase to the MPR at the final policy meeting for the year next week Tuesday,” the Afrinvest analysts stated.