The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is scheduled to convene on Monday to assess the effects of its recent substantial rate hike and chart the course for future monetary policy actions.
Of primary concern to the committee will be the relentless inflationary pressures, which surged to a 26-year high of 31.70 percent in February despite the CBN’s implementation of a contractionary policy stance.
Additionally, the MPC will deliberate on the prevailing exchange rate volatility, which has exhibited some moderation in recent weeks.
Market analysts widely anticipate that the MPC will opt to maintain key policy rates, particularly the Monetary Policy Rate (MPR), which serves as the benchmark interest rate.
During its last meeting on February 27, 2024, the CBN, under the leadership of Cardoso, surprised markets by increasing the MPR by an unprecedented 400 basis points to 22.75 percent from 18.75 percent. This move came amidst significant economic challenges stemming from the removal of fuel subsidies and the depreciation of the Naira.
In addition to the MPR hike, the CBN adjusted the asymmetric corridor around the MPR and raised the Cash Reserve Requirement (CRR) to 45 percent while retaining the Liquidity Ratio at 30 percent.
Despite market expectations for a rate hike to curb inflation, analysts believe that the MPC is likely to maintain the current policy stance, considering the magnitude of the recent rate adjustment. Many view the previous rate hike as excessive and advocate for a pause to assess its impact on the economy.
Market experts emphasize that inflationary pressures persist despite some moderation in exchange rate volatility. They argue that increasing the MPR alone may not effectively address inflation, as other factors contributing to rising prices, such as food inflation and currency fluctuations, remain unresolved.
To mitigate the adverse effects of inflation, stakeholders recommend a comprehensive approach, including implementing agricultural policies, supporting the private sector with loan schemes, and enhancing welfare programs for the vulnerable population.
While acknowledging the need to prioritize price stability in the short term, analysts urge the CBN to conduct a thorough impact assessment of its recent rate hike before considering further tightening measures. This approach aims to ensure that policy decisions are well-informed and avoid arbitrary actions that could adversely affect economic drivers.
As the MPC convenes, stakeholders await its decision with keen interest, hoping for prudent policy measures that will promote economic stability and mitigate inflationary pressures in the long run.
