The higher-than-expected fall in Nigeria’s inflation rate has presented a “dilemma” for the monetary policymakers who will be meeting for the first time this year on Wednesday after rebasing exercise cuts spiralling prices by about 10 per cent.
The National Bureau of Statistics (NBS) announced Tuesday that the country’s consumer price index (CPI) has fallen to 24.48 per cent in January up from 34.48 per cent last December, clouding the position of the monetary policy committee (MPC) that hiked rates six times to 27.50 per cent last year to combat rising prices.
Analysts at FBNQuest Capital expect the MPC to hold rates steady given the decline in inflation which is the most watched item and a core mandate of the CBN.
“The sharp drop in headline inflation presents a dilemma for monetary authorities, as it shifts real interest rates from negative to positive,” the analysts said in a note on Tuesday.
Read also: Nigeria’s CPI rebasing: Validating the predictions and exposing the real inflation story
“Given this development, we expect the MPC to pause its tightening cycle at its next meeting on February 19-20, 2025, to assess the future trajectory of inflation before making further policy adjustments.
BusinessDay, in an earlier report had said most analysts expect a hold, citing CPI rebasing and the need to allow previous hikes in interest rates to reflect on the economy.
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.
Also, Bismarck Rewane, chief executive officer of Financial Derivatives Company, in his latest economic report, projected that the inflation rate would decline marginally.
However, he mentioned that interest rates may stay at 27.5 per cent 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 per cent this year,” he said.
Some analysts still maintain that the CBN will be more “cautious” of the inflationary pressures of the recent tariff hikes and may raise rates by a quarter basis points to avert another spike in prices.
“The government has embarked on some increased measures on tariffs – telecoms, electricity and ports – these may stoke prices and the CBN is well aware of the seeming impacts,” a Lagos-based financial analyst said.
“I see the MPC raising rates at their next meeting by 25 basis points to keep prices in check,” the analyst said.
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