Experts predict CBN’s monetary policy decision

As the Central Bank of Nigeria (CBN) commences its scheduled Monetary Policy Committee (MPC) meeting on Monday, analysts have made predictions about the committee’s potential decisions.

Some economic experts anticipate an increase in the Monetary Policy Rate (MPR) to curb inflation, while others hope for a hold on the benchmark interest rate to avoid causing disruptions.

According to the Nigeria Bureau of Statistics (NBS), the headline inflation rate for April increased to 33.69 per cent from 33.20 per cent that it was in March, indicating a 0.49 percentage point increase.

At its last meeting, the CBN raised the MPR by 200 basis points, from 22.75 per cent to 24.75 per cent, in response to rising inflation.

The Committee also adjusted the asymmetric corridor around the MPR at +100 to -300 basis points. Retained liquidity at 30 per cent, the Cash Reserve Ratio (CRR) at 45 per cent for commercial banks and adjusted the CRR of merchant banks from 10 per cent to 14 per cent.

The continued hike in interest rates is said to be straining individuals and businesses financially, hurting local production and prompting appeals for moderation.

Some experts have criticised the 3ggr the tightening measures and urged restraint while others like Ayodeji Ebo, MD/Chief Business Officer, Optimus by Afrinvest still think the rate may be raised further.

“I think that they will raise the rate by another 100 basis points given the position of the inflation rate,” he said.

He noted that FX discussions at MPC meetings are rare, but with recent weeks’ FX volatility, it’s probable they’ll be addressed, potentially leading to actions.

Also, Olumide Adesina, a financial analyst at Quantum Economics, projects that the central bank will maintain high interest rates to make naira-denominated assets more appealing.

“The apex bank will keep rates elevated for the straight 11th time, to amplify the attraction of naira-denominated assets

“The highest price is to stabilise the Nigerian FX market and boost confidence in the naira while buying some time for the fiscal side,” he said.

Paul Alaje, Chief Economist at SPM Professionals, advises against increasing the MPC reviewing rates, expressing reservations about their strategy for economic management.

“We really don’t know what is on their mind, they seem to have a different reason why they run the economy the way they do. So what we can advise is that they don’t increase rates again and the reasons are very obvious,” he said.

He said continuous rate hikes without considering broader economic impacts could lead to recession.

“Increasing rates can crowd out investments, affecting growth, and potentially leading to a recession. We’re already witnessing its impact on companies, with borrowing rates on the rise,” he added.

According to him, responding to the new inflation with rate hikes has been our pattern, but it’s ineffective.

“That simply tells us that we are we’re adopting a wrong approach to combating inflation. So responding to new inflation by increasing rate is what we have done since Emefiele till date. So why do we keep doing the same thing and expect different results? It’s a sign of insanity.”

He said the root cause of inflation, in his view, is food inflation and “simply” manipulating the money supply won’t solve it.

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“People need support to farm, and there’s a lack of infrastructure. Raising interest rates or reducing money supply will only worsen the situation, potentially leading to an economic slump,” he said.

He suggests focusing on resolving structural issues instead of depending solely on monetary policy changes, as inflation is more responsive to exchange rate fluctuations than to adjustments in monetary policy.