Inflation Rate, Forex Crisis, MPR, Other Matters CBN's MPC Will Address This Week

• For two days, the members of the CBN's Monetary Policy Committee will be deliberating on key economic and financial issues
• CBN governor Yemi Cardoso and his team resumed the regular apex bank meeting, which was last held in July 2023
• The outcome of the meeting is expected to chart the course for the CBN's strategy to tackle Nigeria's economic and financial challenges

Legit.ng journalist Victor Enengedi has over a decade's experience covering Energy, MSMEs, Technology and the stock market.

Nigeria's foreign exchange crisis, interest rate volatility, inflation rate spikes and many other pressing issues will take centre stage as the Central Bank of Nigeria meets this week for its 293rd Monetary Policy Committee (MPC) meeting.

This will be the CBN's first Monetary Policy Committee (MPC) meeting under Governor Yemi Cardoso and his recently appointed committee members.

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It would be recalled that the MPC last met in July 2023 and was presided over by the then-acting CBN governor, Folashodun Shonubi.

In January 2024, the CBN disclosed the scheduling of the MPC meeting, to be presided over by Mr. Cardoso, for the 26th and 27th of February.

This announcement marked the first MPC meeting in six months, following the last session held in July 2023.

Since assuming office in September 2023, Mr. Cardoso has overseen the apex bank's utilization of Open Market Operations to implement measures to tighten its monetary policy stance in alignment with efforts to address inflationary pressures.

In a recent statement regarding the upcoming MPC meeting, Cardoso conveyed his optimism about its potential impact on the economy, expressing confidence that it would steer the economy in a positive direction.

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Observers from the analyst and economist community have been actively engaged in predicting the potential results of the meeting, with particular focus on the expected adjustments in interest rates.

Experts predict CBN's new MPR

Several economic analysts have forecasted that the Monetary Policy Rate (MPR), commonly referred to as the benchmark interest rate, is likely to be tightened to curb inflation and mitigate the ongoing naira depreciation.

During the July 2023 meeting, the committee increased the MPR by 25 basis points, raising it from 18.50% to 18.75%.

According to a recent survey conducted by Reuters, indications point to a potential increase of 225 basis points in Nigeria's monetary policy rate by the MPC, bringing it to 21.00%.

Pan-African credit rating agency Agusto & Co, in its monthly newsletter for January, titled, "2024: A year of reckoning, turning points and balancing acts", noted that the new CBN would to orthodox monetary policy activity and a focus on inflation-targeting, using the MPR.

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It stated:

"We expect the CBN to raise the MPR to circa 19.5% before December 2024 given the need to effectively manage inflation, mop up liquidity and raise interest rates to a level where long-term savers earn positive return, while also being mindful of the FGN’s cost of borrowing."

Samuel Oyekanmi, Research and Insights Associate, Norrenberger Group, said that he expects a tightening stance by the MPC.

He said:

"Considering the worsening state of inflation in the country at the moment and the significant FX volatility witnessed across the official and parallel market, I would expect an aggressive tightening stance from the MPC, ranging from 200 to 300 basis points, which will bring the monetary policy rate around 20.75% to 21.75%."

Oyekanmi added that this will reduce the gap between interest and inflation rates, making the Nigerian market appealing to foreign portfolio investors.

Implementing interest rate hikes would likely serve as a pro-growth strategy for the CBN, particularly in stabilizing the naira.

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Therefore, such measures are expected to bring more benefits than drawbacks to Nigeria's economy.

According to Ifeanyi Ubah, a Research Associate at Commercio Partners, there is a chance that the CBN could consider an alternative strategy, considering the observable advancements in certain sectors of the economy.

He said:

"The consensus expectation is leaning towards a rate hike as a measure to curb inflation and bolster confidence in the currency. However, there is a possibility that the Central Bank of Nigeria (CBN) might opt for a different approach. Given the notable improvement in the industry sector, growing by 3.86% from -0.94% in Q4 2022, the CBN may consider alternative measures to address inflation and support economic stability without necessarily resorting to a rate hike."

He expects possible market responses following the meeting's conclusions, as they hold significant implications for investment strategies and risk mitigation measures.

Nigeria's persistent forex challenges, especially regarding the Naira-Dollar exchange rate, remain a significant concern for the CBN.

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One of the CBN's focus will be to initiate transparent and effective monetary measures crucial to stabilize the exchange rate and mitigate the adverse effects on Nigeria's economy and its people.

Also speaking, Olumide Adesina, a financial expert said:

"The CBN will have to maintain a hawkish stance to make naira-denominated assets more attractive and reduce the incentive of speculation in the FX market."

All eyes on the MPC

On Thursday, February 22, 2024, the Senate approved the appointment of Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), as the Chairman of the Monetary Policy Committee (MPC).

Additionally, the Senate confirmed Muhammad Sani Abdullahi, Bala Bello, Emem Usoro, Philip Ikeazor, and Lamido Yuguda, the Director General of the Securities and Exchange Commission, as members of the MPC.

Other confirmed members include Jafiya Lydia Shehu, the Permanent Secretary of the Ministry of Finance; Murtala Sabo Sagagi, a director at the CBN; Aloysius Ordu; Aku Odukemelu; Mustapha Akinwunmi; and Bamidele Amoo.

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The outcomes of this week's MPC meeting will chart the course for the strategy the CBN aims to employ in addressing several critical economic and financial challenges facing Nigeria in the upcoming weeks.

Source: Legit.ng