The Central Bank of Nigeria (CBN) will likely raise interest rates to tame at this week’s MPC meeting.
The CBN’s Monetary Policy Committee (MPC) will hold its next meeting on September 24-25 to deliberate on interest rates. Experts who spoke to TechCabal predict that surging prices may force the apex bank to raise the Monetary Policy Rate (MPR) from 18.75% to 20%.
Mayowa Badejo, a partner at 213 Capital Ltd, predicts that the CBN will raise the MPR to 20%. “I said 20% because I see inflation going higher till the end of the year coupled with the forex crisis. Already, I believe the current inflation is hugely discounted anyway. By the time fiscal spending and palliatives start, inflation will skyrocket and investors will demand for higher returns on investments,” he told TechCabal.
Central Banks usually raise interest rates as a means to control inflation. Per Bloomberg, the MPC has raised rates by 700 basis points since May 2022. Yet, inflation has not slowed. While a few industry watchers believe a higher interest rate may not solve the problem, the acting CBN governor, Folashodun Shonubi, disagrees. At the last MPC meeting where interest rates were hiked by 25 basis points, Shonubi said the bank is concerned with hiking the interest rates, reducing liquidity, and curtailing inflation.
The rising inflation rate is a worrying concern
Oise Ajayi, the head of investment research at Achoria asset management, said a hike of the interest rates was imminent since the Central Bank governor had publicly admitted it. He said the rate was hiked by 25 basis at the last meeting due to a slower rate of inflation. “Now that the inflation rate is 24%, at the very minimum, the basis point would be hiked between 25-50 basis points and above ,” he told TechCabal.
Samuel Oyekanmi, a research analyst, begged to disagree. He said the CBN would continue to maintain a cautious hawkish approach towards its monetary policy, which means that they would not likely raise above 50 basis points and could consider maintaining rates depending on what Q2’23 Gross Domestic Product (GDP) figures indicate. Nonetheless, he believes the rising inflation rate is a phenomenon that would not abate. “The rising rate of inflation does not look like something that will slow in the short term, considering the continuous impact of fuel subsidy removal, exchange rate unification and other inflationary policies,” he told TechCabal.
