[ad_1]
By Chima Nwokoji | Lagos
As the Central Bank of Nigeria’s (CBN’s) Monetary Policy Committee (MPC) holds its second meeting of the year, analysts have predicted that the fourth quarter (Q4) Gross Domestic Product (GDP) numbers, as well as the rising inflation numbers, would likely encourage it to retain its unanimously hawkish position.
This means that the MPC might increase interest rates to prevent an economy from overheating (prevent inflation from going too high).
The CBN’s Monetary Policy Committee is set to meet today and Tuesday after which it would announce its policy decision.
In an analyst note issued by Proshare Research on March 17, the experts expect another 100-basis points rate hike to push the minimum lending rate to 18.5 percent, citing the sharp decline in Purchasing Managers’ Index (PMI) numbers.
Despite the moderation in inflation in the core sub-index, the analyst’s long-term inflation outlook is moderated by a no-change outlook for the country’s foreign reserves and the exchange rate, as well as the expected rise in petroleum prices after the removal of the fuel subsidy.
The favourable decline in the month-on-month inflation observed in February they said, is yet to constitute a trend.
Recently, the National Bureau of Statistics published the latest consumer price inflation report and showing that Nigeria’s headline inflation rate rose 0.09 percent points to 21.91 percent in February 2023 from 21.82 percent in January. This shows an acceleration of the headline index for the second month to a near 17 and half-year high, above market expectations for a paltry five basis points above the 21.82 percent reported in January 2023.
Moreover, the re-monetisation of the old N500 and N1,000 would reflate effective demand and price growth in 30-60 days.
“While we expect a slight reduction in commodity prices to moderate, as we approach the dry season harvest of cassava, maize, rice and yam, monetary authorities must explore alternatives to interest rate hikes to increase capital importation.
“Our analysis suggests that the single most important determinant of capital flows is the exchange rate differential between the several exchange rate windows,” the analysts stated.
In January, the MPC voted to raise the policy rate by 100 bps to 17.5 percent in a bid to curb rising inflationary pressure.
Looking at the personal statements of MPC members as they appear in the more detailed version of the recently released communique, it is clear that despite the slight moderation in year on year (y/y) inflation in December 2022, most members were of the opinion that the disinflationary process had not yet begun, especially given the rise in month-on-month (m/m) readings for the headline and food measures. This view, which was a major factor in the committee’s decision to raise rates further, has since been vindicated, as shown by the upward trend in inflation readings.
Analysts at FBNQuest believe that with the failure of Silicon valley Bank and Credit Suisse’s financial stability in Europe, analysts anticipate that the implications of monetary tightening on the financial soundness of Nigerian banks will be a key focal point of discussion for the MPC.
“As we approach the next MPC meeting next week, the statements suggest that most members will likely maintain their hawkish stance,” they stated.
READ ALSO FROM NIGERIAN TRIBUNE
[ad_2]
