MPC likely to raise interest rate further by 25bps, says analysts

Analysts at Cordros Research, on Wednesday said it expected the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to increase interest rate or Monetary Policy Rate (MPR) further by 25 basis points.

The committee is expected to hold its penultimate meeting of the year on the 25th and 26th of September 2023.

The members had voted to incrrease interest rate to 18.75 per cent.

According to analysts at Cordros Research, “Like the previous meetings, we expect the Committee to consider developments in the global and domestic economy since the last policy meeting.

“On the global scene, systemic central banks are signalling a peak in their interest rate hiking cycles while still keeping the option of additional rate hikes open if inflation surprises to the upside. In the domestic economy, headline inflation maintained its upward trajectory due to the lingering adverse impact of PMS subsidy and FX reforms amidst existing challenges limiting food supply.

“Additionally, local currency pressures remain intact, and the non-oil sector may slow further in Q3-23 amid the near-term negative spillovers of lingering economic reforms. Overall, our baseline expectation is for the MPC to increase the MPR further by 25basis points while retaining other policy parameters.”

The expressed, however, “that the voting patterns and CBN’s tone from the last meeting suggest that the Committee might be tempted to keep rates steady at this meeting, we think the dynamics have changed as inflationary pressures have intensified, given the lagging impact of the current administration’s reforms.

“Besides, the core inflation (+67basis points to 21.15per cent y/y) settling at a record high also implies that demand-side factors are stoking price pressures as much as supply-side factors, thus providing further reason to maintain a tight monetary policy stance.

“Notably, we spotlight the expansion in monetary aggregates, with the broad money supply increasing by 25.5% year-to-date (as of the end of July).

“Thus, we believe the MPC will continue to use a combination of interest rate increases and liquidity tightening to anchor medium-term inflation expectations, more so that price pressures remain biased to the upside over the rest of the year. Conclusively, our baseline expectation is for the MPC to (1) raise the MPR further by 25bps, (2) remove the N2.00 billion limit on the Standing Deposit Facility (SDF), and (3) retain other policy parameters.”