There are indications that the Central Bank of Nigeria (CBN), at its next Monetary Policy Committee (MPC) meeting, is likely to raise interest rates in an effort to contain inflation.
However, analysts fear that this could have a negative impact on businesses and consumers as against the expectations of the markets in line with the recent policy reforms by the new administration for interest rates moderation.
The CBN had announced that the 292nd meeting of the MPC will be held on Monday and Tuesday and will be chaired by Shonubi Folashodun, the acting governor of the apex bank.
Cowry Assets Management’s top analysts project the July inflation rate at 23.05 percent, “while the MPC may tweak rates slightly in the upward direction by 25bps to 18.75 percent.”
The CBN started its monetary policy tightening cycle in May 2022, with its benchmark interest rate (the monetary policy rate MPR), rising from 11.5 percent to 18.5 percent in May.
The Partner and Chief Economist at KPMG Nigeria, Dr Yemi Kale, said, “Inflation rates are high and rising, and with the recent subsidy and FX reforms, inflation is almost definitely going to rise higher and all happening at a time, confidence in its ability to control inflation is weak.”
Kale said the inability of the CBN to control inflation has been largely due to the main drivers of inflation being structural and supply-based, which cannot be controlled effectively with the money supply tools available to it.
“However, more recently, the growth in money supply following the various recent reforms is likely to worsen inflation. Excess liquidity may also find its way into the FX market and put pressure on the naira both at official and parallel markets.
“The MPC will therefore have a difficult decision on how to pull inflation down without hurting economic growth further, which further tightening might cause. However, I expect the CBN will be more concerned about inflation being its core responsibility and will tighten the MPR further but at the same time release the CRR to support the economy,” Kale stated.
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