Economists across the country are projecting that the Central Bank of Nigeria (CBN) to hike the Monetary Policy Rate (MPR) at the end of its periodic Monetary Policy Committee (MPC) meeting scheduled for today, Monday Feb 26 and Tuesday Feb 27, 2024.
The CBN’s MPC is responsible for guiding the CBN in the management of the nation’s monetary policies and strategies. The 293rd MPC will be Olayemi Cardoso’ first meeting after confirmation as the new CBN governor.
The MPR, which is the benchmark interest rate for the country currently stands at 18.75 percent.
Using sentimental analysis of previous communiques issued at the end of the MPC meetings and factoring in the high inflation regime, deteriorating exchange rate and subdued growth, economists at the Analysts Data Services and Resources (ADSR) said the CBN will most likely hike rate further at the end of its MPC meeting.
“A total of 109 MPC communiques released in the last 20 years are analyzed, using a text-mining algorithm to score the sentiments in the communiques across CBN governors’ terms. Generally, the highest sentiment score was obtained from the communiques released under Soludo (60.2%), followed by Sanusi (58.3%) and then Emefiele (44.1%).
“The next MPC meeting, being first under Mr. ‘Yemi Cardoso, will most likely decide to tighten further, to address rising inflation, raise real interest rate, and incentivize inflow of capital to support the naira. There are consequences, especially in higher cost of capital to businesses and the cost of borrowing to the national and sub-national governments, as well as investors’ returns on different portfolios,” ADSR said.
Headline inflation rose to 29.9 percent in January 2024, as recently announced by NBS. Food inflation is higher at 35.41 percent. The forex market has been uncertain resulting in spiral depreciation of the naira to the US dollar, among others. These challenging times require the authorities at the CBN to think out of the box.
“Recall that at the last policy meeting of the MPC in July 2023, the anchor rate – the MPR – was raised by 25bps to 18.75%, in continuation of the Apex Bank’s policy onslaught against Nigeria’s high inflation rate. However, the inflation rate has remained unresponsive to the CBN’s strategy (up 582bps since the last MPC to 29.9% y/y), largely due to a lack of synergy between fiscal & monetary authorities, and the faulty lines in policy transmission mechanisms.
“For the upcoming meeting, we anticipate that the MPC might further tighten the anchor rate by 100 – 200bps to 19.5% – 20.5%, premised on stubborn domestic inflation, reluctance of global systemic central banks to cut rates, and the positive but modest domestic GDP growth numbers for FY’23,” Afrinvest said in a note to investors.
