Analysts at Cowry Research have predicted that there will be a 25 basis points (bps) to 50bps hike in interest rates as the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) meets this week.
That is despite the slow acceleration in headline inflation over the last four months, an indication that the impact of the CBN’s tightening measures are permeating the economy. The 296th MPC meeting has been scheduled to hold between July 22 and 23 2024. The committee is the highest policy-making body of the bank, led by Olayemi Cardoso, CBN governor.
The MPC meeting is set up to review the country’s economic and financial conditions and determine the appropriate monetary policy direction in the short to medium term.
According to the analysts, even as “we expect to see a moderation in Nigeria’s inflation in the second half of the year, largely due to high base effects, some downside risks to this expectation exist, as consumer prices may face further pressure from ongoing higher minimum wage negotiations between the federal government and labour leaders, significant depreciation of the Naira, and high Premium Motor Spirit (PMS) prices due to ongoing fuel scarcity, which could negatively affect transportation costs.
“Looking ahead to the monetary policy committee of the CBN meeting to decide on various economic indicators while considering the current domestic and international economic outlook, we think the current inflationary pressure leaves the committee with little or no room for a rate tweak in favour of a loosening stance.
“Thus, a 25bps to 50bps hike in interest rates is anticipated.”
The Cowry analysts said the current inflationary pressure leaves the committee with little or no room for a rate tweak in favour of a loosening stance.
This dilenma poses a question on whether the monetary authority has no firepower within its arsenal to tame rising inflation to its target band of 9 percent.
In Nigeria, food prices have continued to soar due to factors like supply chain disruptions, currency depreciation, and the impact of climate change on agriculture. This has made basic staples like rice, beans, and vegetables increasingly unaffordable for the average Nigerian, stretching household budgets to their limits.
Over the years, inflationary pressures have continued to impact the economy, prompting the CBN to employ conventional monetary policy tool of interest rate hike to fight rising inflation. Howbeit, this inflation targeting model adopted has yielded little or no impact as the rate of headline inflation rises to new highs every month.
The latest report from the National Bureau of Statistics on Nigeria’s consumer price inflation shows another rise, albeit at a slower pace, with the headline index reaching 34.19 percent year-on-year in June 2024. This marks the eighteenth consecutive month of acceleration and the first time since March 1996 that the inflation rate has crossed 34 percent.
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