There were strong expectations yesterday that the benchmark interest rate will go up as the Central Bank of Nigeria (CBN) begins its two-day policy-decision meeting today.
Most analysts surveyed by The Nation said they expected the Monetary Policy Committee (MPC) of the apex bank to increase the Monetary Policy Rate (MPR).
They, however, differed on the extent of increase. Their predictions ranged between 50 and 75 basis points.
The MPC had at its last meeting in July 2022 raised the benchmark interest rate by 100 basis points to 14.00 per cent, bringing the increase so far this year to 250 basis points.
Afrinvest (West Africa) Limited said the rising inflation rate and considerable growth in Gross Domestic Product (GDP) in second quarter 2022 had solidified expectation of a new rate hike by MPC.
Afrinvest aligned with the majority view of a 50 basis point hike in MPR to 14.50 per cent, noting that inflation will continue its upward trajectory; with expectation of an increase of 60 basis points to 21.1 per cent.
Bismarck Rewane’s Financial Derivatives Company (FDC) at the weekend said it expected the MPC “to remain committed to its price stability mandate and may further hike the interest rate as inflation remains elevated”.
Analysts at Cordros Capital said they expected the MPC to “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 from +100/-700 basis points around the MPR, given the continued hawkish rendition of global central banks amid a comfortable level of domestic growth and persistent inflationary pressures”.
Cordros Capital noted that the apex bank’s meeting comes at a time global central banks are marching on with their interest rate hiking cycle despite the increasing risks to growth.
According to them, the MPC will during the two-day meeting assess the domestic and global economic environment, specifically the key economic and financial indicators since its last policy meeting in July 2022.
Cordros Capital said: “In our opinion, the second quarter 2022 growth print of 3.54 per cent 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 expected to consider the continuing inflationary pressures. Inflation rate had risen by 88 basis points from 19.64 points in July to 20.52 per cent in August – the highest rate since 24.32 per cent peak in September 2005.
The stakeholders added that the hawkish stance of global central banks would be a major discussion point at the meeting, given that tighter global financing conditions could induce investors to “retreat” and eschew opportunities outside the advanced economies.
“Consequently, we think the Committee will be concerned about the negative impact of capital outflows on the external sector, increasing the urge to introduce measures to send positive signals that it is intentional about bringing down inflation,” Cordros Capital stated.
Cowry Asset Management expected the MPC to hike the MPR by 75 basis points in a bid to rein in inflation.
Analysts at GTI Capital said they expected the decision at the MPC to moderate the direction of the Nigerian equities market, a common position with most analysts. Increased rate will further dampen investors’ appetite for equities in favour of fixed-income securities. Nigerian equities lost 0.9 per cent or N241 billion last week with three in every four price changes negative.
Highlighting the underlining issues, FDC in the Unity Bank Digest released at the weekend, stated that sustained rise in inflation will continue to leave Nigerians gasping for breath as disposable income shrinks and the cost of living worsens.
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 cent per annum, which dampens investor confidence and deters investment inflows into the country, further weighing on economic growth.”
