May 22, (THEWILL) – As the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) meets for its May 2022 meeting this week, analysts at Cordros Capital Limited, see the MPC raise the monetary policy rate (MPR) by 0.5 percent.
The team of the Lagos-based research firm said in its economic report published at the weekend, that it sees the MPC raise the MPR by 0.5 percent after 20 months it was last adjusted.
The MPR is the benchmark interest rate set by the CBN, on which the deposit money banks (DMBs) base their lending rates to customers.
The MPR has been held at 11.5 percent along other liquidity parameters since September 2020, when it was reduced by 100 basis points (bps) to increase access to funds, as part of the measures to contain the effects on COVID-19 on businesses.
At the March meeting, four out of 10 members voted for an upward review, showing the gradual return of the hawks, said the report, while other analysts described the voting pattern as showing the rate-fixing body is gradually moving away from the sideline.
Cordros, in the report, said that a lot had changed in the global economy and that the recent events suggest the MPC will activate a “reactive function.”
“On the global scene, sustained inflationary pressures have prompted global central banks to march on with their hiking cycles. At the same time, the unabating war between Russia and Ukraine, combined with renewed lockdowns in China, have created cracks in the health of the global economy.”
The report further stated: “On the domestic front, the sharp increase in headline inflation to 16.82 percent year-on-year (Y/Y) in April – the highest since August 2021, will be a cause for concern to committee members, particularly, as the trend will continue in the coming months, due to the pass-through impact of elevated global energy prices.”
Hence, it envisages that the members will “take the pedal off the throttle in supporting economic recovery and switch to a hawkish monetary policy stance to anchor inflation expectations” to stabilise the external sector.
It, however, views that the committee could consider the implications of a rate hike on the domestic interest rate environment and be tempted to push back a rate hike until the July meeting.
“All in, we think the committee would retain the MPR at 11.5 percent alongside other monetary policy parameters. However, we do not rule out the possibility of a 50bps hike in the MPR, given the hawkish rendition among global central banks and the indirect impact of the Russia/Ukraine crisis on domestic inflationary pressures”, it concludes.
Central banks across the globe started normalising their monetary frameworks in the last quarter of last year as inflationary pressure proved it was not transitory as initially thought.
It could be recalled that the Federal Reserve System has increased interest rates twice this year, with the second adjustment by 50 basis points being the first time it would happen in over two decades.
Central banks in Europe, Asia and Africa have long joined in the rate adjustment to cope with prevailing economic realities.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
