*predict Likely Between 100-200Bps Hike
Analysts spoken to by metrobusinessnews.com (MBN) concerning the outcome of the second Monetary Policy Committee (MPC) meeting which begins today till Tuesday were unanimous in their submissions; cautious optimism of further tinkering with the rate with between 100 and 200 basis hike.
The analysts’ predictions are based on the rising inflationary trend, that seemed to have defied all logic and exchange rate volatility and its pass-through effect on prices of goods and services in
Nigeria.
“Given the urgency of addressing inflation, the MPC is expected to prioritize policies aimed at curbing it. An increase in the Monetary Policy Rate
(MPR) by 200bps to 24.75% is
anticipated. While a rate hike is
likely, the MPC might choose to
maintain other policy parameters, such as the Cash Reserve
Ratio (CRR),” Meristem Securities, said in a note to investors.
The firm added that such a decision would reflect a cautious approach towards managing system liquidity while prioritizing naira stability as the CBN sets its eyes on
increasing FPIs to further sup
port the exchange rate stability.
Infact, at the
last MPC meeting held between
February 26th and 27th 2023, the committee raised further the benchmark interest rate, (MPR), to 22.75 percent from 18.75 per
cent, amounting to an increase of 400 basis points. It also raised the Cash Reserve Ratio (CRR)
to 45 percent from 32.5 percent,
maintained the liquidity ratio at
30 percent while the asymmetric
corridor around the MPR was
left at +100/-700 basis points from +100/-300 basis points.
“As the MPC meets today, we expect them to raise
interest rates by 100–150 basis points. Maintaining the status
quo or cutting rates are not viable options on the table,” Bismarck Rewane’s Financial Derivatives Company
(FDC) said.
Afrinvest says it foresees a
rate hike of about 100-200 basis
points but recommends that the best decision to take now in view
of the last rate hike is to retain
the existing rates.
“We anticipate between 100-
200 bps rate hike. That said, we recommend a hold deci
sion as a more appropriate path considering the strong interest rate hike less than a month ago,”
Afrinvest said.
Notwithstanding the hawkish stance of the CBN, both the headline and food inflation continued to soar, reaching new highs in February 2024. According to the National Bureau of Statistics (NBS), headline inflation rose to 31.70 percent and food inflation jumped to 37.92 percent in February 2024.
One of the reasons the CBN took the hawkish stance in February was to address the surging inflation.
“The price stability mandate vested in the Central Bank necessitates making difficult decisions to steer the economy towards recovery. Given the imperative to curb inflationary pressures, which could pose social challenges and impede long-term growth prospects, I am persuaded that the MPC must adopt an assertive stance by tightening monetary policy measures,” Olayemi Cardoso, CBN governor said in February.
Undoubtedly, the discussion today will mostly centre on the unrelenting inflationary pressures which reached a 26-year high at 31.70 per cent in February despite the central bank pursuing inflation targeting policy.
The committee will also give attention to current exchange rate volatility which has shown a bit of moderation in recent weeks.
The development has made some analysts to predict a hold on key policy rates, particularly the Monetary Policy Rate (MPR), the benchmark interest rate.
At the February 27, 2024 meeting, the apex bank jolted the markets and beat analysts’ expectations when in one fell swoop, raised the MPR by a whopping 400- basis points to 22.75 percent from 18.75 percent – at a period of biting economic hardship occasioned mainly by the removal of fuel subsidy and floating of the Naira.
The bank also adjusted the asymmetric corridor around the MPR to +100/-700 basis points from +100/-300 basis points