Some analysts have projected that to contain growing inflation, the Monetary Policy Committee (MPC) may increase the cost of credit to the economy (interest rate), also known as the Monetary Policy Rate (MPR), by an additional 100 basis points. Meetings of the MPC are scheduled for today and tomorrow.
The headline inflation rate increased from 33.20 percent in March 2024 to 33.69 percent in April 2024. The National Bureau of Statistics (NBS) states that this is an increase of 0.49 percentage points.
Both on the official and black markets, the value of the naira remains low, trading at a rate of N1,500 to N1,550 against the US dollar.
The Central Bank of Nigeria (CBN) raised interest rates by 200 basis points in February 2024, from 22.75 percent to 24.75 percent, during its most recent meeting in March 2024.
In March 2024, the CBN increased its benchmark interest rate (MPR) by a total of 600 basis points over a month, to 24.75 percent. Additionally, the interest rate was raised by the top bank by 400 basis points to 22.75 percent the prior month.
The 295th meeting of the MPC is set to take place on Monday and Tuesday, according to a notification released by the CBN on its website.
“We anticipate that the Central Bank of Nigeria will increase its policy rate by 100 basis points to 25.75 percent during its May MPC meeting (which was previously on hold),” stated Razia Khan, managing director and senior economist of Standard Chartered Bank’s Africa and Middle East Global Research.
She continued, writing in a statement to BusinessDay, “The April CPI increased to 33.7 percent y/y from 33.2 percent in March, in line with our expectations. More importantly, the month-over-month rate decreased to 2.3 percent from 3.0 percent in March, which, in our opinion, indicates that the effects of the previous tightening are beginning to be seen. The significant increase in electricity rates for the top 15% of consumers that went into effect in early April was somewhat mitigated by this.”
Per Khan, there are still dangers to the inflation outlook. “Corporate demand is front-loaded in anticipation of another currency overshoot,” she said, highlighting the pressure on the USD-NGN FX rate in both the parallel market and the Nigeria Foreign Exchange Market.
The CBN increased its FX market involvement this week in response, but further action might be required. The CBN will face pressure to continue tightening until an increase in the dollar supply is guaranteed (we anticipate the syndication of an Afreximbank loan for $1.05 billion in May, the financing of $750 million by the World Bank in mid-June, and the possible issue of Eurobonds).
“We now project an additional 100bps of tightening in May, with September still looking plausible for easing. Our year-end policy rate estimate now stands at 22.75 percent (21.75% previous),” the speaker stated.
Chief investment officer of Cowry Asset Management Alatise Yusuf predicted that it will probably rise by an additional 100 to 150 basis points to keep inflation under control. The rates were maintained in the most recent Treasury Bill auction, and they most likely will be for some time to come. In fact, May FGN savings bonds increased to as high as 17.04 and 18.04 for two and three years, respectively, to absorb money that was in circulation.
Head of Agusto Consulting’s financial institutions ratings, Ayokunle Olubunmi, stated: “We expect the MPC to maintain its tightening stance given the inflation numbers released by the NBS. We predict an additional increase in the MPR, but not exceeding 200 basis points. However, we do not anticipate further increases in the Cash Reserve Ratio (CRR) or liquidity ratio, at least at this meeting.”
Additionally, the CBN raised the CRR to 45 percent at the most recent MPC meeting. It also kept the liquidity ratio (LR) at 30 percent and changed the asymmetric corridor around the MPR to +100/-700 from +100/-300 basis points.
According to Bismarck Rewane, managing director and CEO of Financial Derivatives Company Limited, “the CBN will increase the MPR by 100 basis points.” He added that the naira will straddle between N1,300 and N1,400 for May, indicating that this will be the name’s defensive tactic in the foreign market.
“We expect the committee to continue to tighten monetary conditions as part of its ongoing efforts to counteract inflationary pressures. As a result, we anticipate that the MPC will hike the policy rate by 50 to 100 basis points,” FBNQuest analysts said.
The International Monetary Fund (IMF) directors have applauded Nigerian authorities for their efforts to control inflation and boost investor confidence. They emphasized the significance of preserving exchange rate flexibility, increasing reserves, and maintaining a strict monetary policy stance to drive inflation downward.
A committee of Nigeria’s Central Bank formed by CBN Decree 1999 (Amendment) and CBN Act of 2007 (Amended) to support the Federal Government’s economic strategy and enable the attainment of price stability is referred to as the MPC, according to the regulator of the banking and finance sector.
