Analysts have expressed different expectations as they await the decision of the Monetary Policy Committee (MPC) on interest rates.
The MPC, chaired by Godwin Emefiele, governor of Central Bank of Nigeria (CBN), commenced its meeting on Monday and will announce its decision on Tuesday (today).
The MPC meeting, which was initially scheduled to hold on July 26 and 27, was preceded by a retreat at the weekend for the first time in about four years.
Emefiele, who explained that the aim of the MPC’s retreat was to appraise its monetary policies in the past, said: “After the meeting, we will see a new improved monetary policy and a new improved central bank.”
According to him, monetary policy has been severely challenged, as its policy space narrowed significantly, in some cases, paradoxically and necessitating the need to rethink monetary policy in the context of emerging challenges and economic transformation.
The MPC meeting is coming at a time when central banks across the globe are tightening their monetary policy due to global rise in inflation rate.
Last month, the Federal Open Market Committee unanimously decided to raise the target range for the federal funds rate to 1.50 percent to 1.75 percent, with further rate hikes expected.
Pointing to the rising inflation rate, some of the analysts polled by BusinessDay expect further hike in the monetary policy, while majority of them expect a hold to sustain economic growth.
In its last meeting in May 2022, the CBN raised its benchmark interest rate, known as the Monetary Policy Rate (MPR), by 150 basis points to 13 percent, for the first time in six years.
The CBN retained the Asymmetric Corridor of +100/-700 basis points around the MPR, the CRR at 27.5 per cent, and the Liquidity Ratio at 30 per cent.
“With inflation rate at 18.6 percent and still expected to rise and weak exchange rate, there is high probability that the MPC will consider another rate hike of 0.5 percent, ” said Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited.
Taiwo Oyedele, head of tax and corporate advisory services at PwC, said: “I expect the MPC to maintain rates, given the significant adjustment to the MPR in the last quarter.”
He said a further increase in MPR is unlikely to reverse the rising inflation in the short term, given the key drivers of inflation being rising prices of staple food and high energy cost, in addition to scarcity being experienced in some parts of the country with the attendant impact on transportation cost, as well as naira’s persistent depreciation and rising prices globally, thereby fuelling imported inflation.
He noted that some new and higher taxes took effect in June including excise duties on beverages and telecommunications.
Uche Uwaleke, professor of Capital Market and president of Association of Capital Market Academics of Nigeria, said: “I expect a hold position as MPC members will likely retain all parameters. Granted that inflation rate is rising and pressure on exchange rate is mounting, monetary policy tightening has to be approached with caution so as not to stifle economic growth.
“It was only in May that the MPC jerked up the MPR by an unprecedented 150 basis points. Given that the impact of a change of that magnitude comes with a lag, I expect the MPC to allow the impact of that decision to permeate the system before any consideration of a change in stance.”
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Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, does not expect any drastic change in the monetary policy rate due to rising inflation.
He commended the MPC for taking steps to review and appraise its policies and expects it to announce the outcome of the retreat at the meeting today.
Some Nigerians went to social media to complain about some of the challenges confronting them in the financial space.
“The dollar Eurobond market is effectively closed to us for now (rates are > 12 percent). We will have some (small bond repayment coming up). Our oil is not producing much in the way of net dollars even at high oil prices. Foreign investors are not really interested. Our reserves are decent,” a concerned individual with a Twitter username @Afalli.eth, said.
Commenting on this issue, an analyst explained that the CBN has no tools to address the Eurobond issue because there are no receivables.
During the MPC retreat, Emefiele said: “We have witnessed very difficult times, unprecedented in global and Nigeria history – from the global financial crisis, to Ebola, to oil price war, to cryptocurrencies, to COVID-19 pandemic to Russia-Ukraine war, and to rising global inflation, with all the severe consequences for macroeconomic stability and growth.
“While the Nigerian economy has been engulfed with many crises, just like many other countries of the world, we have been able to relatively withstand the storm and have performed far better than many of our pairs, courtesy of our bespoke and ingenious approach of adopting well thought out and home-grown policy measures to address our macroeconomic challenges.”
