Cordros sees CBN raising interest rate to 18.5%
Ahead of the next week’s meeting of the Monetary Policy Committee of the Central Bank of Nigeria, analysts at Cordros Capital Limited expects the benchmark interest rate to be hiked by 50 basis points.
The CBN raised its monetary policy rate to 18 percent in March for the seventh straight time since May last year in a bid to tame inflation.
Inflation, however, quickened for the fourth straight month to 22.22 percent in April from 22.04 percent in March, data released on Monday by the National Bureau of Statistics showed.
“Inflationary pressures [are] likely to remain sticky in the near term,” the Lagos-based financial services firm said on Thursday in a note.
It attributed the price increases in April to the festive-induced demand and the passthrough impact of higher transport costs in the review period.
“Consequently, we expect the MPC to remain concerned about the persistent inflationary pressures, likely attributing it to supply shocks and the one-off elevated demand witnessed in the review month,” the analysts said. “Overall, the committee is likely to express further concerns on upward risks to inflationary pressures in the near term, including the prospect of subsidy removal.”
The MPC members are expected to urge the fiscal authority to sustain its real sector interventions and take decisive steps in tackling the contributory legacy factors limiting food production and distribution in the country, the firm said.
It said the MPC has reached a point where overtightening becomes a concern even as the debate remains on what constitutes a neutral interest rate that will not hurt domestic growth.
The analysts said: “In our view, given that the end of rate hikes by systemic global central banks is in sight amid sticky domestic inflation, we think the MPC is likely to maintain a slower rate hike at this meeting. Indeed, at the post-MPC conference in March, the CBN governor guided that maintaining an aggressive tightening poses a risk to financial system stability.
“Accordingly, he stated that the MPC will adopt a strategy of smaller rate hikes going forward to narrow the negative real returns amid the risks of overtightening. Consequently, we expect the committee to increase the MPR by 50bps and retain other policy parameters.”
