The benchmark interest rate is expected to increase when the Central Bank of Nigeria (CBN) begins its two-day policy-decision meeting today, according to expectations that were high yesterday.
The majority of economists polled by The Nation predicted that the top bank’s Monetary Policy Committee (MPC) would raise the Monetary Policy Rate (MPR).
But their opinions on the size of the growth varied. Their forecasts covered a range of 50 to 75 basis points.
The benchmark interest rate was increased by 100 basis points to 14% by the MPC at its most recent meeting in July 2022, bringing the total increase this year to 250 basis points.
Afrinvest (West Africa) Limited claimed that the expectation of a fresh rate hike by the MPC had been cemented by the growing inflation rate and significant growth in Gross Domestic Product (GDP) in the second quarter of 2022.
Afrinvest agreed with the majority’s assessment that the MPR should be raised by 50 basis points to 14.50%, saying that inflation will continue to rise and anticipating an increase of 60 basis points to 21.1%.
The MPC is expected to stay dedicated to its price stability mandate and may further boost the interest rate as inflation remains elevated,” according to a statement made over the weekend by Bismarck Rewane’s Financial Derivatives Company (FDC).
According to analysts at Cordros Capital, given the continued hawkish stance of central banks worldwide, along with a comfortable level of domestic growth and ongoing inflationary pressures, the MPC should “increase the MPR by at least 50 basis points and to adjust the asymmetric corridor back to its pre-COVID level of +200/-500 basis points around the MPR.”
The meeting of the apex bank will take place as central banks around the world continue to raise interest rates despite growing risks to growth, according to Cordros Capital.
They claim that at the two-day meeting, the MPC would evaluate the local and international economic environments, specifically the major financial and economic indicators since its most recent policy meeting in July 2022.
Cordros Capital said:
In our opinion, the second quarter 2022 growth print of 3.54% suggests the Committee could become cautiously comfortable with the growth levels, giving it a much-needed reason to maintain its fight against the stubbornly-high inflationary pressures, more so that a sustained negative real interest rate could dampen domestic investments and undermine the stability of the local currency. Moreover, the more hawkish rendition from global central banks also supports the Committee towing the same path to reduce external pressures. Thus, we think further tightening is necessary to anchor inflation expectations.
The MPC is anticipated to take the ongoing inflationary pressures into account. The inflation rate increased by 88 basis points from 19.64 to 20.52% in August, reaching its highest level since a peak of 24.32% in September 2005.
A prominent topic of discussion at the summit, according to the stakeholders, would be the hawkish posture of the world’s central banks given the possibility that investors may “retreat” and avoid chances outside of the developed nations as a result of tighter global financing conditions.
In an effort to control inflation, Cowry Asset Management anticipated that the MPC will increase the MPR by 75 basis points.
Most experts share the view expressed by the analysts at GTI Capital that the MPC decision will temper the trajectory of the Nigerian stock market. A higher interest rate will make investors less interested in investing in stocks and more interested in fixed-income products. Last week, Nigerian stocks lost 0.9%, or N241 billion, with three out of every four price moves being negative.
In the Unity Bank Digest, which was published over the weekend and highlighted the underlying difficulties, FDC noted that the continued rise in inflation will continue to leave Nigerians gasping for air as disposable income declines and the cost of living rises.
The FDC report said:
Consequently, the rate of poverty will remain elevated as the standards of living fall. Falling consumer demand brought on by increasing inflationary pressures will dampen businesses sales and profits while their cost of operation edge higher due to rising energy costs.
This would further be worsened by the lingering issue of forex scarcity, which raises the cost of raw materials importation. The increased business costs and lower profit margins would also constrain business activities and, in turn, weigh on the country’s growth rate.Additionally, the current rate of inflation further widens the negative real return on investment to 6.52% per annum, which dampens investor confidence and deters investment inflows into the country, further weighing on economic growth.