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Monetary Policy Committee Expected to Raise Interest Rates to Combat High Inflation

Key Points:

  • Analysts predict Nigeria’s newly constituted Monetary Policy Committee will increase interest rates at its upcoming meeting on February 26–27, 2024.
  • The move aims to tackle the country’s persistently high inflation rate, which accelerated to 29.9% in January 2024.
  • Factors like global economic trends, oil price stability, and the depreciating naira will influence the MPC’s decision.

Abuja, Nigeria Economists at Meristem Research anticipate Nigeria’s Monetary Policy Committee (MPC) will raise the Monetary Policy Rate (MPR) during its two-day meeting starting Monday, February 26. The projection comes as the country grapples with soaring inflation and economic pressures.

In its latest macroeconomic report, Meristem Research stated the MPC would likely evaluate global disinflation trends and central bank measures while assessing oil price fluctuations and the potential impacts of economic downturns in the UK and Japan.

On the domestic front, analysts cited the continuous rise in headline inflation, driven by escalating food prices and naira depreciation, as a major concern for the committee. “Factors such as money supply and the naira’s free fall are expected to influence the committee’s deliberations,” the report noted.

High inflation prompts rate hike expectations. With inflation reaching 29.9% in January 2024, according to the National Bureau of Statistics, Meristem Research forecasts a 100 basis point increase in the MPR to 19.75%. Additionally, they project a 250 basis point hike in the Cash Reserve Ratio to 35%, while other policy parameters may remain unchanged.

“Considering the sustained inflationary pressures and the anticipation of a continued uptrend, we foresee the Committee raising the policy rate,” the analysts stated, adding that a “hold” stance is unlikely given the need to align the MPR with prevailing market interest rates.

Economic Growth Amid Challenges Despite the inflationary pressures, Nigeria’s economy grew by 3.46% in the fourth quarter of 2023. However, the foreign exchange and food crises remain pressing issues, as highlighted during the Senate’s recent screening of the newly nominated MPC members.

President Bola Tinubu forwarded the nominations last week, and the Senate confirmed CBN Governor Olayemi Cardoso as the MPC Chairman on Thursday, along with other members, including CBN Deputy Governor Muhammad Sani Abdullahi and representatives from various financial institutions.

The MPC’s decision on interest rates will significantly impact Nigeria’s economic landscape, and businesses and consumers alike eagerly await the committee’s deliberations.

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