50-100bps rate hike likely as MPC concludes meeting – CSLS
The Central Bank of Nigeria (CBN) is anticipated to sustain its contractionary monetary measures as it concludes its fourth Monetary Policy Committee (MPC) meeting of the year, analysts at CSL Stockbrokers Limited have said.
Price pressures and the need to attract foreign portfolio investments (FPIs) remain top priorities for the monetary policy committee, according to them.
They pointed out that headline inflation continued its upward trend in July, rising to 34.19% in June from 33.95% in May.
“Additionally, weak capital inflows amid heightened seasonal demand have kept the naira pressured and will likely prompt the MPC to implement a final rate hike of 50-100 basis points (bps) for the year,” they said. “After this anticipated adjustment, we expect the CBN to maintain the MPR for the remainder of the year as the rate hikes have significantly increased borrowing costs for manufacturers and business owners, who are also grappling with the effects of the naira devaluation.”
The analysts said the
CBN efforts to control inflation through a cumulative increase of
1,475 basis points in the Monetary Policy Rate (MPR) since May 2022 have
had minimal impact.
They said: “Although a moderation in headline inflation rates is expected in the
second half of the year due to base effects, it is anticipated that the headline inflation rate will end the year well above the CBN’s target of 21.4%. This likely outcome will diminish any plans for easing monetary policy.
“Cautious optimism around emerging market assets, coupled with the ongoing lack of a clear and sustainable solution to Nigeria’s FX crisis, continues to limit foreign exchange inflows into
the country amid seasonal demand pressure. This heightened demand, combined with weak FX inflows, has kept the Naira under pressure in recent weeks.
“The exchange rate closed at N1500.32/US$, compared to N1468.99/US$ at the last MPC meeting, likely prompting a final rate hike. Earlier this year, there were indications of increased foreign inflows; however, we
have observed a slowdown in recent months. Foreign investors are likely to remain cautious as they seek clarity on the country’s foreign exchange market.”
