Analyst says interest rate may increase as MPC holds meeting today


According to financial analysts, the Monetary Policy Committee of the Central Bank of Nigeria may increase the Monetary Policy Rate, also known as the benchmark interest rate at the end of the meeting on today.

The MPC commence its two-day meeting on Monday, Just few days after the National Assembly Screened and welcome new members of the MPC.

This gathering makes it the first meeting since the new CBN Governor, Olayemi Cardoso, assumed the leadership of the apex bank.

The MPC may raise the benchmark interest rate because, there had been concerns over the failure of the MPC to meet. While rising inflation and the naira experiencing volatility against the United States dollar.

Wakadaily learnt that, the MPC are also expected to make major decisions on banks’ capital requirements and liquidity ratios.

The move is said to be part of measures to rein on the increase rate that presently stands at 29.9 per cent.

The National Bureau of Statistics in its latest report said rising food prices, transportation and housing were the major contributors to the 28-year high in January.

The senate confirmed Cardoso as the MPC chairman. The lawmakers also confirmed four deputy governors of CBN and seven others as MPC members on February 22, 2024 at the convergence coming seven months after its last session.

The former acting governor of the apex bank, Folashodun Shonubi, increased the monetary policy rate by 25 basis points to 18.75 per cent, from 18.5 per cent in May last year. The capital requirement ratio was retained at 32.5 percent while the liquidity ratio stood at 30 percent at the last meeting in July 2023.

The CBN’s MPC retained the MPR at 11.5 per cent. Thus, things began to change in March 2022 under suspended former governor, Godwin Emefiele, when the rate was reviewed upwards to 12 per cent for two years.

Since then, the MPR has risen from 13 per cent in May 2022 to 18.75 per cent in July 2023 when the last MPC was commenced.

According to a Reuters poll released on Friday, Nigeria is expected to implement two aggressive interest rate hikes in less than two months to control inflation and strengthen the naira, following a few missed monetary policy sessions.

The policy rate is expected to increase by 225 basis points to 21.00 per cent despite the local currency still trading near its record low on the black market.

A professor of Economics and the President of the Nigerian Economic Society, Adeola Adenikinju, stressed that the committee might not have many options on the table but to increase the interest rates.

He maintained that the rate increasement would send an appropriate signal on the bank’s commitment to reduce inflation and ensure price stability.

He said ,“With the domestic and international economic conditions. The MPC may have to further tighten the monetary system. Inflation is going high at 29.9 per cent and the exchange rate is under a lot of attack while there is a lot of liquidity in the system.

“You still have globalisation going on in developed economies so given that the CBN governor has stated that he is focused on the core mandate of the institution and ensuring price stability. The only thing the MPC can do is to tighten it very strongly so that they can send a message that they have to bring inflation under control and increase liquidity in the system. Yes, I expect that the MPR will go up and they will likely touch on the cash reserve.”

He noted that the focus should rather be on stabilising the country’s exchange rate regime, which is the major reason for the increased cost of production and price indices.

Adding that, “I don’t expect the MPC to increase interest rate because it is very clear that the drivers of inflation are not the influx of money in the economy. It is about exchange rates, so raising the interest rate will be counterproductive because they are saying banks shouldn’t lend money and that would increase the cost of borrowing. So I don’t expect it to increase, it should remain the same and their focus should be on how the exchange rate can be stabilised.

“If they say liquidity is too much, we should ask whose hand it is. Tightening the credit or reserve requirement may not disturb anything. I believe that they should leave the rates as they are presently if they cannot reduce them. The government is also doing some interventions so let’s see what that would do to the economy.”


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