MPC: CBN May Raise Rates Today Over Rising Inflation

The Central Bank of Nigeria (CBN) is constrained to either hold the monetary interest rate at 18.5 per cent along other parameters today or continue on its tightening spree to cut down on Nigeria’s demand-pull inflation.

The Monetary Policy Committee of the CBN rounds up its two-day bi-monthly meeting today on the back of higher inflation rate expectations orchestrated by commodity price pressures as a result of increase in gasoline prices.

Investors and policy makers await the outcome of the meeting to evaluate the situation around Nigeria’s ailing economy. The country’s 22.41 percent headline inflation, high cost of transportation, 22.25 percent food inflation, floating of the Naira and expected increase in electricity tariff have created a cloud of uncertainty around the economy.

This is the first meeting the apex bank is holding since Godwin Emefiele was suspended as CBN governor and President Bola Tinubu assumed office as Nigeria’s 16th president.

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President Tinubu had said Nigeria’s monetary policy needs to be thoroughly cleansed, while promising to ensure that the central bank works towards a unified exchange rate to direct funds away from arbitrage into meaningful investment in the plant, equipment and jobs that would power the real economy. That’s yet to be seen.

“Interest rates need to be reduced to increase investment and consumer purchasing in ways that sustain the economy at a higher level,” President Tinubu had said in his inaugural speech on May 29.

The CBN under Emefiele had promised to continue to tighten rates to tame inflation growth despite its implication on cost of funds and discouragement to productivity.

Whatever be the outcome today, industry watchers expect the acting CBN governor, Folashodun Shonubi-led MPC to make a policy mark that will signal a curve to send a message of hope to investors by loosening the rate in line with the expectations of President Tinubu.

Except that, the MPC will most likely tighten the rates in response to the galloping inflation; or maintain a hold stance in order not to erode the gains of previous policy decisions.

Between May 24th when MPC raised the rates to 18.5 percent and now, nothing has changed for the better, signalling a hold or hike in the rates. For instance, the lingering insecurity in major food-producing areas; high cost of transportation driven by rising energy costs; activities of middlemen in the food distribution channels; as well as the persistence of shocks from legacy infrastructural bottlenecks, remain major drivers of the inflationary pressure.

The economy continues to be weighed down by high import bills, leading to pressure on foreign exchange and resultant increase in the general price level.

Economic experts generally agree that the economy needs to build up the stock of foreign reserves to act as buffers against shocks.

There are those who also say the current trend in price development should curiously be monitored by the central bank in collaboration with the fiscal authority, to address the drivers of inflation.

Except the MPC does the bidding of the President today, the rates will be raised by a few basis-points or held in their present position with meaningful reasons for such a decision.