Analysts expect rate hold as MPC decides Thursday

…CBN seen easing in H2

The Monetary Policy Committee (MPC) will hold its first meeting of the year on Wednesday and Thursday, with expectations high that the committee will retain the Monetary Policy Rate (MPR), also known as the benchmark interest rate.

The Central Bank of Nigeria (CBN) had pushed back the date of the MPC meeting to February 19 to allow for the release of Nigeria’s long-awaited rebased Consumer Price Index (CPI).

Most analysts expect a hold, citing CPI rebasing and the need to allow previous hikes in interest rates to reflect on the economy.

The MPC raised the monetary policy rate by a modest 25bps to 27.5 percent at its last meeting of November 2024.

Razia Khan, managing director and chief economist for Africa and the Middle East at Standard Chartered Bank, said the rescheduling of the meeting has created additional interest in what the CPI rebasing might reveal.

“On balance, however, we expect the CBN to cite the inflation data as a justification for keeping interest rates on hold. With the CBN having raised the monetary policy rate by a modest 25bps to 27.5 percent only at its last meeting of 2024, we think any frontloaded easing might be considered premature by foreign portfolio investors and may put at risk recent hard-won stability in Nigeria’s FX market,” she said.

She expects the CBN to start easing in the second half (H2) of 2025, noting that a faster-than-expected improvement in inflation could see the date of the first rate cut brought forward.

Ayodele Akinwunmi, senior relationship manager at FSDH Merchant Bank, said if economic stability continues into the second quarter of the year, marked by stability in the forex market and a reduction in commodity prices, the CBN could consider reducing interest rates. “By the second half of the year, we may see enough stability in the economy for the CBN to consider lowering interest rates.

Read also: CBN to hold first MPC meeting of 2025 in February

“For now, I expect the MPC to hold rates steady at the upcoming meeting,” he said.

Ayodeji Ebo, an investment professional and managing director/CBO at Optimus by Afrinvest, said given the current economic indicators, the MPC will be facing a decision-making challenge. The CBN has previously raised interest rates multiple times to combat inflation, most recently increasing the MPR by 25 basis points to 27.50 percent in November 2024.

“We think the tightening cycle may have peaked. As a result, we believe that the CBN might choose to maintain the current MPR in the upcoming meeting to allow more time to evaluate the impact of previous adjustments along with the rebased inflation and GDP figures,” he stated.

Bismarck Rewane, chief executive officer of Financial Derivatives Company, in his latest economic report, projected that Inflation rate would decline marginally. However, he mentioned that interest rates may stay at 27.5 percent in February.

“With policy easing by mid-2025 as inflation moderates, the primary focus of CBN is price stability but interest rates will remain above 20 percent this year,” he said.

Contrary view

On the contrary, Ayokunle Olubunmi, head of financial institutions ratings at Agusto & Co., expects a rate hike with other parameters unchanged. “I think the tightening will continue with further increase in the MPR. I expect other metrics to be left constant,” he said.

JP Morgan, an international bank, projects that the MPC will increase rates by 25 basis points to 27.75 percent.

It projects a further hike to 28 percent in the first quarter (Q1) and expects that the MPC will hold rate for the entire year. It stated this in its Emerging Market Frontier Local report.

Monetary policy decisions rely heavily on inflation trends. However, the rebased CPI, which was expected at the end of January, has yet to be published by the NBS, raising concerns about the timing of key economic indicators ahead of the MPC meeting.