New Telegraph

MPC: Analysts Expect Another Rate Hike

With the latest inflation report, released by the National Bureau of Statistics (NBS) last Wednesday, showing that inflation maintained its upward trend to hit 33.69 per cent in April, from 33.20 per cent in March, most financial experts expect that the Central Bank of Nigeria (CBN) will again raise its benchmark interest rate-the Monetary Policy Rate (MPR)- when its Monetary Policy Committee (MPC) wraps up its two-day meeting tomorrow.

However, there is a divergence of opinion among the experts regarding the quantum of hike that they are expecting. For instance, reacting to the April inflation data, analysts at Financial Derivatives Company (FDC), in a report, last week, said they expect the MPC to increase the MPR by either 50 basis points or 100-basis points tomorrow, in line with global trends.

According to the analysts, inflation is likely to maintain its upward trend as a result of renewed pressure on the naira and rising food prices occasioned by the planting season effect. They stated: “Two major uncertainties have impacted inflation expectations and psychology in the past few months.

These include the price of diesel and naira misalignment in the forex market. “The price of diesel declined by 29.41% to N1200/litre from N1700/litre while the exchange rate appreciated by 82%.

After the CBN policy implementation in the month of February, there was a noticeable decline in the month-on-month inflation by 10bps in March and another 73bps in April. “CBN is right on track with what needs to be done to reining inflation.

The MPC meets next week, and as expected are likely to raise rates due to renewed pressure on the naira and the persistent inflation. We expect between 50bps to 100 basis points increase, in line with most other Central Banks in the World.”

Also, in a report last Wednesday, Bloomberg said that analysts expect mounting price pressures from the resurgence of the dollar, foreign-currency crunches and adverse weather conditions, to lead to delayed and shallower interest-rate cuts for African central banks, including the CBN, this year.

According to the news agency, analysts predict Nigeria, Angola and Zambia, which are still fighting double-digit inflation, will over the next three weeks, raise interest rates and only start reducing them next year.

Specifically, it said: “Angola, Egypt and Nigeria in the past year devalued their currencies in a step toward a free-floating exchange rate and curtailed some costly subsidies. Their moves have fanned inflation and prompted steep rate increases.

“Nigeria’s steps initially fueled a rally in the naira, but that has since largely reversed. In the past month, the unit has become the world’s worst-performing currency.”

The news agency quoted Danelee Masia, senior economist for sub-Saharan Africa at Deutsche Bank, to have said: “With renewed challenges presenting themselves, among others sluggish demand from international investors amid concerns over dwindling reserves, pressure has increased on the central bank to lift rates.”

It noted that CBN Governor, Olayemi Cardoso, recently said interest rates would stay high for as long as necessary to contain inflation. Bloomberg was actually referring to the interview that Cardoso had with the Financial Times last week in which he was reported as saying that orthodox policies would be implemented to tame inflation and that there is “every indication” that the MPC would “do whatever is necessary” to rein in inflation.

He was quoted to have said: “They will continue to do what has to be done to ensure that inflation comes down. Let’s face it: for a long period of time, the CBN did not embrace orthodox monetary policies.

We want to go back to using an orthodox method, and it will take us to where we want to go.” He was also reported as saying that the apex bank had been “reoriented” to focus on “price and monetary stability.”

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