The Monetary Policy Committee of the Central Bank of Nigeria may raise the Monetary Policy Rate, otherwise known as the benchmark interest rate at the end of the meeting on Tuesday, according to financial analysts.
The MPC began its two-day meeting on Monday, a few days after the National Assembly screened and okay new members of the MPC.
MPC meeting this week became the first meeting since the new CBN Governor, Olayemi Cardoso, assumed the leadership of the apex bank.
There had been concerns over the failure of the MPC to meet. With rising inflation and the naira experiencing volatility against the United States dollar, there are reports the MPC may raise the benchmark interest rate.
Experts, who spoke with The PUNCH on Monday, also expected the MPC to make major decisions on banks’ capital requirements and liquidity ratios.
The move is said to be part of measures to rein on the inflation rate that currently stands at 29.9 per cent.
The National Bureau of Statistics in its latest report said rising food prices, transportation and housing were the major contributors to the 28-year high in January.
Ahead of the convergence coming seven months after its last session, the Senate, on February 22, 2024, confirmed Cardoso as the MPC chairman. The lawmakers also confirmed four deputy governors of CBN and seven others as MPC members.
At the last meeting in July 2023, the MPC, headed by the former acting governor of the apex bank, Folashodun Shonubi, increased the monetary policy rate by 25 basis points to 18.75 per cent, from 18.5 per cent in May last year. The capital requirement ratio was retained at 32.5 percent while the liquidity ratio stood at 30 percent.
For two years, the CBN’s MPC retained the MPR at 11.5 per cent. However, things began to change in March 2022 under suspended former governor, Godwin Emefiele, when the rate was reviewed upwards to 12 per cent.
Since then, the MPR has risen from 13 per cent in May 2022 to 18.75 per cent in July 2023 when the last MPC was held.
According to a Reuters poll released on Friday, Nigeria is expected to implement two aggressive interest rate hikes in less than two months to control inflation and strengthen the naira, following a few missed monetary policy sessions.
It said the policy rate is expected to increase by 225 basis points to 21.00 per cent despite the local currency still trading near its record low on the black market.
Reacting, a professor of Economics and the President of the Nigerian Economic Society, Adeola Adenikinju, stated that the committee might not have many options on the table but to increase the interest rates.
He added that the rate increment would send an appropriate signal on the bank’s commitment to reduce inflation and ensure price stability.
He said, “With the domestic and international economic conditions. The MPC may have to further tighten the monetary system. Inflation is going high at 29.9 per cent and the exchange rate is under a lot of attack while there is a lot of liquidity in the system.
“You still have globalisation going on in developed economies so given that the CBN governor has stated that he is focused on the core mandate of the institution and ensuring price stability. The only thing the MPC can do is to tighten it very strongly so that they can send a message that they have to bring inflation under control and increase liquidity in the system. Yes, I expect that the MPR will go up and they will likely touch on the cash reserve.”
However, a professor of Economics at Olabisi Onabanjo University, Sheriffdeen Tella, disagreed with this position stressing that the MPC should vote to keep borrowing at the current rate.
He added that the focus should rather be on stabilising the country’s exchange rate regime, which is the major reason for the increased cost of production and price indices.
He stated, “I don’t expect the MPC to increase interest rate because it is very clear that the drivers of inflation are not the influx of money in the economy. It is about exchange rates, so raising the interest rate will be counterproductive because they are saying banks shouldn’t lend money and that would increase the cost of borrowing. So I don’t expect it to increase, it should remain the same and their focus should be on how the exchange rate can be stabilised.
“If they say liquidity is too much, we should ask whose hand it is. Tightening the credit or reserve requirement may not disturb anything. I believe that they should leave the rates as they are presently if they cannot reduce them. The government is also doing some interventions so let’s see what that would do to the economy.
In an earlier PUNCH report, analysts at Meristem Research projected a hike in the policy rate.
In its macroeconomics report, the analyst said that MPC would be focused on several considerations, including evaluating the disinflation trends observed in advanced economies and monitoring the measures implemented by global monetary authorities.
Meristem in its report said, “During the upcoming meeting, we anticipate that the Monetary Policy Committee will focus on several key considerations. These include evaluating the disinflation trends observed in advanced economies and monitoring the measures implemented by global monetary authorities.”
