Given rising inflation seen for the sixth consecutive month to 8.5 percent in August, expectations are high that the Central Bank of Nigeria (CBN) could raise benchmark rates or at best maintain the status quo as the Monetary Policy Committee (MPC) begins its two days meeting today.
Nigeria’s inflation which is nearing the apex bank’s 9 percent upper target has been driven by an upward movement in food prices, the National Bureau of Statistics (NBS) said.
Analysts said the current situation makes sense for the CBN to now start looking at the best mix of policies to keep the inflation within 6-9 percent target, making further tightening in monetary policy rate (MPR) held at 12 percent since 2011 a possible option.
Bismarck Rewane, chief executive, Financial Derivatives Company (FDC), projects that the previous assumptions of members of the MPC may be altered at this time with the rate of increase in the headline CPI and may prompt a change in policy stance.
“Likely responses to these creeping threats to inflation include increase in CRR on private sector deposit from 15 percent to 18 percent, increase in CRR on public sector deposit from 75 percent to 100 percent and increase in the monetary policy rate by 200-300bps from the current 12 percent p.a.,” Rewane says.
He, however, does not foresee any major adjustment to the exchange rate band, especially as the CBN continues to defend the naira with the external reserves in an effort to keep the local currency relatively stable.
At the last MPC meeting in July, CBN governor, Godwin Emefiele, had expressed concern about the liquidity level and the trending uptick in inflation which he linked to high food prices buoyed by poor harvests.
But he raised hope that other reform measures could dampen food prices in the short to medium term and restore inflation to a sustainable long-run path.