MPC members to likely hold interest rate at 27.50%, says analysts

A group of analysts at Cordros Research have hinted that the Monetary Policy Committee (MPC) members of the Central Bank of Nigeria (CBN) to hold its Monetary Policy Rate (MPR) or interest rate at 27.50 per cent. 

The Committee is scheduled to hold its first meeting of the year on February 19th and 20th and they are expected to assess both global and domestic economic developments. 

Analysts at Cordros Research in a report said, “despite persistent global risks, including the ripple effects of US trade tariff hikes and a negative real rate of return, we believe the MPC’s decision will be primarily influenced by near-term expectations of moderating inflation and the continued stability of the naira at the Nigerian Foreign Exchange Market (NFEM). 

“Given these conditions, we expect the MPC to pause its prolonged rate-hiking cycle, allowing the impact of previous rate increases to fully transmit through the economy. Overall, our baseline view is that the MPC will hold the Monetary Policy Rate (MPR) steady and maintain all other policy parameters at the upcoming meeting.”

In the oil sector, crude oil production averaged 1.63 mb/d in Q4 2024, representing a per cent increase from the 1.55 mb/d recorded in Q3 2024.

Analysts at Cordros Research attributed the growth to increased pipeline surveillance and the increased oil production from new oil fields. 

“Overall, we estimate that GDP expanded by 3.70% y/y in Q4-24, compared to 3.46% y/y in both Q3-24 and Q4-23. 

“Consequently, we anticipate that the MPC will maintain an optimistic outlook, confident that the economy will remain on a growth trajectory despite the impact of monetary tightening. The Committee is likely to emphasize the importance of price stability as a critical driver of sustainable growth over the medium term,” they explained. 

Consumer prices are poised to moderate in the near term, primarily driven by a high statistical base in the previous year, a lower exchange rate pass-through following stability in the naira and lower increases in energy prices. Using the current methodology (2009 base year), 

Cordros Research estimated the headline to ease by 50bps to 34.30per cent y/y in January (December: 34.80per cent  y/y). Additionally, the weight adjustment in the inflation basket under the proposed inflation methodology (2024 base year) could induce a steeper fall in inflation below our estimate. 

“Consequently, we expect the Committee to adopt an optimistic stance on inflation moderation, highlighting the impact of CPI rebasing, naira appreciation, and the recent decline in diesel prices as key drivers,” the report stated. 

They expected   Nigeria’s MPC to acknowledge the mounting risks to the global economic outlook, particularly from a potential trade war triggered by US tariff hikes and retaliatory measures from affected countries. 

“The Committee is expected to monitor global developments closely, focusing on their impact on Nigeria’s trade and inflation outlook while assessing the potential spillover effects on naira and capital flows, given increased global market volatility,” 

They added that, “Building on cues from the November 2024 MPC meeting, we expect the Monetary Policy Committee (MPC) to adopt a forward-looking approach in determining its monetary policy stance. We believe the MPC anticipates a moderation in inflation in the near term, supported primarily by naira stability. 

“Additionally, we see limited room for further interest rate hikes by the MPC despite the existing negative real rate of return, considering the potential impact on borrowing costs for both corporations and the government. 

“We do not expect the MPC to consider a rate cut given (1) still elevated inflation, (2) persistent global economic risks and (3) the need to maintain the naira’s attractiveness to foreign investors and sustain FX inflows. 

“As such, we expect the MPC to pause its tightening cycle, opting to assess the impact of previous rate hikes on the anticipated disinflation process before making further adjustments. Our baseline view is for the MPC to adopt a HOLD stance and retain other policy parameters.”