The Bank of America says aggressive interest rate hikes are unlikely, while predicting that Nigeria’s inflation will rise to 30 percent in the first quarter of 2023.
“A higher rate of 30 percent would require aggressive interest rate hikes. But these are politically sensitive for a less independent central bank. We get the sense that aggressive hikes are not likely,” the bank said in a note to its client seen by BusinessDay on Thursday.
President Bola Tinubu during his inauguration on May 29, 2023, said the 18.5 percent interest rate of the Central Bank of Nigeria (CBN) was too high.
The Bank of America said hiking too much could presumably hurt the manufacturing sector and potentially cause economic weakness.
“Rather, we expect the focus to be on addressing the sources of inflation – reducing the parallel market, fiscal financing by the CBN and boosting domestic production,” the bank said.
The CBN in its last Monetary Policy Committee (MPC) meeting on May 24, 2023, raised its benchmark interest rate known as the Monetary Policy Rate (MPR), by 50 basis points to 18.5 the seventh straight time in one year.
At the meeting, the MPC was concerned that, despite the tight monetary policy stance adopted since its May 2022 meeting, inflation had not decelerated towards the Bank’s long run objective. The MPC noted that the continued rise in headline inflation, albeit moderately, remained the biggest challenge confronting macroeconomic stability in Nigeria.
Nigeria’s annual inflation rate accelerated to 22.41 per cent in May from 22.22 percent in the previous month, the National Bureau of Statistics (NBS) said.
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Godwin Emefiele, the suspended CBN governor, who chaired the meeting noted that the committee tasked the bank’s research and monetary policy departments to evaluate the counterfactual evidence from available data, using empirical analysis and the results revealed that following each monetary policy rate hike, the rise in inflation moderated relative to what it could have been, if the MPC had not aggressively raised rates at all.
Headline inflation in the view of the MPC members, remained high due largely to a host of non-monetary issues outside the reach of the central bank such as the perennial scarcity of petrol and expectations of short-term hikes in the pump price of the petroleum product, high and rising price of various energy sources, and a host of headwinds confronting the food supply chain.
