The first, two-day Monetary Policy Committee (MPC) meeting under Yemi Cardoso as Governor of the Central Bank of Nigeria (CBN) commenced today with higher expectations that the outcome would have positive impact on the wobbling economy.
The heightened expectation also is ocassioned by the macroeconomic changes that have happened since the July 2023 last MPC meeting and assumption of Bola Tinubu as the president of Nigeria.
Similarly, the current step of stabilising the economy with the collaboration of the private sector operatives is seem by some analysts as necessary and commendable efforts at quickening the revival process.
Specifically, President Bola Tinubu has established a tripartite Economic Advisory Committee, including some notable organized private sector operatives like Aliko Dangote, Tony Elumelu, Femi Otedola and notable Economists, representatives from the Federal Government, sub-national entities, with the aim of collaboratively addressing economic challenges and drive growth.
In the last 292nd, MPC meeting under the former governor, Godwin Emefiele, the Monetary Policy Rate (MPR) was increased to 18.75% while the asymmetric corridor was adjusted to +100 / – 300 basis points around the MPR, and CRR and Liquidity Ratio were retained at 32.5% and 30%, respectively.
The new economic realities, typified by the rise in core and food inflation, cost of living as well as low disposable income, Cardoso is expected to role up his sleeves and get the economy back on track with credible monetary policies, working together with the executive for complementary fiscal policies.
Expectedly, the governor has replaced the five external members of the committee and the Senate has approved their appointment with also Cardoso as the chairman of the committee.
The MPC consists of the governor, as the chairman, four deputies and two bank directors, plus five outsiders appointed by the president and the governor. The MPC needs six of the 12 to be present to constitute a quorum.
Interestingly, Cardoso had pledged a return to orthodox central banking with a focus on tackling inflation and stabilizing the country’s free-falling naira currency, thereby increasing expectations of stakeholders in the economy.
“We are committed to rebuilding an institution that is trusted and respected and promoting confidence in the economy,” Cardoso said recently.
Analysts and Economists also expect Cardoso’s MPC to significantly increase the benchmark interest rate, also known as the monetary policy rate, in what will be the first gathering of the MPC since July, when it lifted the policy benchmark to 18.75.
The government has been trying to take control of the naira’s value and maintain its place in the financial system as well as reduce the volatility in the foreign exchange market.
Some of the measures include, subsidy removal, unification of exchange rates, new guidelines for IMTOs and Bureau De Change operations and recently restricting access to Crypto Currency and Binance platforms, thought government has not owned up officially to banning their operations in the country.
Following a few missed monetary policy sessions, Nigeria is expected to implement two aggressive interest rate hikes in matters of months for a former grip and to control inflation and strengthen the naira, according to a Reuters poll released on Friday.
With the local currency still trading near its record low of above N1500/$ on the black market and January inflation increasing to 29.9 percent year over year, market pundits anticipate considerable policy tightening and the announcement of de facto system-wide tightening measures.
The Chief Executive Officer of the Financial Derivatives Company, (FDC), Bismarck Rewane, says CBN’s MPC will have no option but to tighten interest rates amid soaring inflation and economic hardship.
Rewane, who appeared on a recent interview on Channels Television said that the MPC would likely increase the country’s interest rate by nothing less than 200 basis points.
“We have no choice but to tighten monetary policy. They must tighten and tighten well.
“I will suggest that nothing less than 200 basis points will send a signal to the market.
“We have seen the primary option and bond option in the treasury bill,” he said.
In what appears as making a statement and emphasizing the daunting task before CBN, the National Bureau of Statistics says Nigeria’s inflation soared 29.90 per cent in January 2024.
According to Rewame, in the recent FDC Economic Outlook, this rise is due to a combination of factors including a weaker naira, high diesel prices, cost of logistics, and the cross-elasticity effect on domestic commodities (substitutes).
Also notable is the amplified Inflation expectations of consumers which have risen significantly compared to prior months.
Food inflation surged by 1.48% to a record high of 35.41% especially the prices of cereals, yams, fruits, fish, meat, potatoes, vegetables, and eggs experiencing the largest price hikes.
Core inflation rose by 0.52% to 23.59% from 23.07%. The highest price hikes were observed in the cost of transportation both by road and air.
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The monetary policy meeting (MPC) is scheduled for February 26 and 27. In view of the foregoing, the MPC is expected to maintain its hawkish stance in a bid to rein inflationary pressure.
Analysts posit the likelihood of MPC raising the policy rate by at least 200 basis points (bps) to 20.75%p.a. from the current rate of 18.75%p.a. In the past, an increase in the policy rate has not affected the general rate but this time, with higher expectations and stakes, it may likely do..
Many Nigerian households are currently battling
with high cost of living
prompting them to adopt innovative ways in their purchasing decisions as prices of goods and services reach an alarming level.
Households are now being compelled to make do with the availables since the desirables are fast diminishing.
Similarly, although the economy, according to NBS expanded by 3.46% in Q4’24, annualized at 2,74% from 3.1% in 2022, it snowed a 0.36% decline.
Underperforming its expectations due to pressing concerns about exchange rate misalignment, and persistent inflationary pressure, some analysts see growth outlook for the next quarter likely to be tepid if these concerns linger.
This is because, of the 46 activities monitored by NBS, 9 (19.56%) expanded while others either slowed or contracted.
The development underscores the ongoing challenges including inflation, FX market
