CBN expected to hold interest rates steady Tuesday after two-year hiking cycle

The Central Bank of Nigeria is expected to keep the benchmark interest rate at 26.75% next week at the end of its Monetary Policy Committee meeting, according to analysts at Lagos-based Cordros Research. 

“We think the Monetary Policy Committee faces a pivotal decision – either maintain current rates to allow previous hikes to fully impact the economy or continue rate increases to reinforce gains from prior adjustments owing to the elevated inflation risks exacerbated by the recent rise in PMS price,” the analysts said.

They expect the committee to refer to the recent decline in headline inflation, even as inflation risks are now strongly tilted to the upside. 

They said: “Additionally, the intensification of global monetary policy easing reduces the risk of capital flight from developing markets like Nigeria, lessening the pressure for defensive rate hikes. Also, we highlight the dovish signals from the CBN coming off the apex bank’s adjustment of the asymmetric corridor to +500/-100bps around the MPR. 

“Specifically, the CBN limited the Standing Deposit Facility rate of 25.75% on deposits of up to NGN3.00 billion, with a fixed rate of 19.0% on excess deposits, thus discouraging banks’ utilisation of this window. As a result, fixed income yields have pared down over time. Given these developments, we expect the MPC to keep the policy rate at 26.75% while retaining all other parameters.”