Analysts predict 25.75% raise in MPR at CBN’s MPC meeting

Analysts have predicted an increase to 25.75 per cent in the Monetary Policy Rate (MPR) of the Central Bank of Nigeria (CBN) and the retention of other parameters to tackle the double-digit inflation rate and foreign exchange crisis as the committee hold its third meeting of the year on May 20th and 21st, 2024.

The Governor of the CBN, Yemi Cardoso, recently stated that the apex bank’s current spate of monetary policy tightening measures would not be long-term and will be relaxed once there are substantial improvements in the economy in terms of inflation and exchange rate.

According to him, the committee does not expect a long-term interest rate tightening, and as the reforms being implemented take effect, MPR will relax.

Analysts at Cordros Research said, “Despite the moderation in price increases evidenced in the decline in month-on-month inflation numbers for April, we anticipate a further tightening of the monetary policy rate.”

They attributed the decline to a one-month data release of a slowdown in prices is not sufficient for the MPC to conclude that inflation is under control, inflation risks are skewed to the upside given that currency pressures have resurfaced, and the need to manage inflation expectations given the inflationary impact of the anticipated review of the minimum wage.

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“Accordingly, we anticipate the MPC will raise the MPR by 100 basis points to 25.75 per cent while holding other parameters constant,” they disclosed in the latest report,” they added.

At the last MPC in March, the members voted to raise the MPR from 22.75 per cent to 24.75 per cent, adjust the Asymmetric Corridor to +100/-300 basis points around the MPR, retain the CRR at 45.0 per cent, adjust the CRR for Merchant Banks from 10.0 per cent to 14.0 per cent, and retain the Liquidity Ratio at 30 per cent.

Analysts at Cordros Research, stated that it expected the Committee to consider developments in the global and domestic economy since the last policy meeting.

On the global scene, interest rates remain elevated amid the ongoing geopolitical tensions. Domestically, although consumer prices have slowed on a month-on-month basis, we note that inflation risks are skewed to the upside due to the volatility of the naira in the foreign exchange market and the anticipated review of the minimum wage.

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“Hence, we anticipate the MPC to tighten its monetary policy, albeit moderately, to manage inflation expectations, tighten monetary conditions and reduce the negative real interest rates. Our base expectation is a 100 basis points increase in the MPR whilst holding other parameters constant.”

Headline inflation maintained an upward trend in April, edging higher by 43 basis points to 33.69 per cent y/y (March: 33.20per cent y/y), as the analysts noted that prices slowed primarily due to reduced exchange rate pass-through given the appreciation of the naira, improved food supplies following the commencement of the off-season harvest and a slowdown in logistics costs.

“We expect the Committee to note the moderation in price increases, potentially citing the naira appreciation as a strong factor. However, we expect the Committee to highlight that the upside risks to inflation remain potent given the renewed pressure in the FX market and the potential review of the minimum wage, announced by the Federal Government to be implemented in May,” they explained.