MPC Meeting: Interest Rate Likely to Rise

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to maintain its aggressive stance on inflation control as it convenes today for its final meeting of the year. This follows the trend set at the September meeting, where the MPC raised the Monetary Policy Rate (MPR) by 50 basis points to 27.25%, citing concerns over core inflation, increasing money supply, fiscal deficits, and rising food prices.

While headline inflation had shown signs of decline during the last MPC meeting, core inflation remained stubbornly high due to rising energy costs and other structural factors. CBN Governor Olayemi Cardoso acknowledged the federal government’s efforts to improve security in farming regions and noted their initiatives to address food supply shortages, such as the duty-free import window for food commodities. He also expressed optimism that the opening of the Dangote refinery would help reduce transportation costs and alleviate food price pressures in the short to medium term.

Despite these efforts, inflation is once again on the rise, prompting analysts to predict that the MPC will stick to its hawkish approach. Analysts at Afrinvest highlighted several challenges, including rising inflation, weaker Purchasing Managers’ Index (PMI) data, fiscal deficits, and expansion in money supply. The latest PMI data for October showed a dip, with the composite PMI falling to 49.6 from 50.5 in September, signaling a slowdown in economic activity. The contraction in the industry sector, particularly in food, beverage, and tobacco production, was notable, with rising production costs exacerbated by the depreciation of the naira.

Additional concerns include energy price hikes (+2.2% month-on-month), foreign exchange volatility, and increasing national debt, which has reached N134.3 trillion, about 52% of GDP. With projections indicating the national debt could surpass N150 trillion by 2025, these factors will weigh heavily on the MPC’s decision.

Analysts suggest that, given the persistent inflationary pressures, the MPC will likely raise the MPR by at least 25 basis points in today’s meeting, aiming to attract foreign investment and maintain a positive real interest rate. Meristem Securities also anticipates a 50 basis points hike to 27.75%, as the committee focuses on stabilizing the naira and controlling inflation while balancing fiscal challenges.

Overall, the MPC’s final meeting of the year will be crucial in determining the direction of Nigeria’s monetary policy in the face of escalating inflation and economic pressures.