Analysts hint of MPC increasing interest rate to 27.25%  

A group of analysts at Cordros Research, have   predicated hike in interest rate by Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) by 100 basis points to 27.25 per cent next week.

The committee has set to meet on 22 and 23 July, 2024, for their fourth meeting of the year. Currently at 26.25 per cent, the committee in 2024 has consistently hike interest rate from 18.75 per cent it closed 2023 amid inflationary pressure and scarcity of foreign exchange.   

The analysts at Cordros Research stated that, “As expected, the MPC will assess recent developments in the global and domestic economies since the last policy meeting.

“For the global economy, we note that interest rates have remained elevated. However, central banks are beginning to pivot to monetary policy easing as global inflation approaches set targets.

“On the domestic front, we highlight the resilient economic growth but still elevated inflationary pressures indicated in the further uptick in the June inflation print (34.19per cent y/y).

“Additionally, we point out the increased volatility in the naira primarily due to muted FPI inflows and frail FX interventions from the CBN.

“Therefore, we expect the MPC to maintain a tight monetary policy stance at its upcoming meeting to (1) reduce the negative real rate of return, (2) manage inflation expectations, and (3) stabilize the naira. As a result, we expect the CBN to raise the MPR by 100 basis points to 27.25per cent in its meeting next week.”

Analysts have attributed the increase in lending to the hike in MPR and severe macroeconomy challenges.

The CBN Governor, Dr. Yemi Cardoso, had highlighted the central bank’s proactive approach towards monetary tightening amidst challenging economic conditions.

The rate hike will slow economic growth and reduce consumer spending, according to analysts at FBN Quest.

“Ultimately, the impact on the general economy could be a potential slowdown in economic growth, with consumer spending suppressed, and a decrease in business investments,” FBN Quest said in a recent note.

Th chief executive of the Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, stressed that the hike in MPR would mean a higher cost of credit to the real sector.

He said, “The new dramatic increase in MPR means that the cost of credit to the few private sectors that have exposure to bank credits will increase, which will impact their operating costs, prices of their products and profit margins, amidst very challenging operating conditions.”

He noted that in the Nigerian context, price levels are not interest sensitive, stressing that supply side issues are much more profound drivers of inflation.

According to him, the hike would further pose a risk to the financial intermediation role of financial institutions in the country.

“The increase would constrain the capacity of banks to support economic growth and investment, especially in the real sector of the economy because the increases are quite significant.

“Already, bank lending has been constrained by the high CRR, with many operators in the sector claiming that effective CRR is as high as 50 per cent for many banks. The Nigerian banks are yet to live up to their financial intermediation role because of these constraining factors,” he concluded.