The Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) has begun its final two-day meeting of the year today in Abuja, with analysts predicting a rate hike of 25 to 50 basis points (bps) in response to persistent inflationary pressures and ongoing naira volatility.
Nigeria’s inflation rate spiked to 33.88% in October 2024, up from 32.70% in September, according to the National Bureau of Statistics (NBS). This surge follows a sharp increase in inflation, from a low of 3% in July 2006 to the current level, the third-highest in recent history, trailing only the peak of 34.19% in June 2024.
The CBN has been on a tightening path since 2022, raising its benchmark interest rate, the Monetary Policy Rate (MPR), by a total of 1,525 basis points (bps). This includes 825bps since mid-2023, a response to President Tinubu’s fuel subsidy removal and ongoing foreign exchange reforms.
Razia Khan, Managing Director and Chief Economist for Africa and the Middle East at Standard Chartered Bank, suggested the CBN could raise the MPR by another 50bps to 27.75% at this meeting. She cited the persistent rise in inflation, driven mainly by food and transport costs, as well as the lingering effects of flooding in northern Nigeria and October’s modest increase in fuel prices. Khan emphasized that supply-side shocks, rather than excessive demand, remain the key drivers of inflation.
Similarly, Ayodeji Ebo, Managing Director of Optimus by Afrinvest, also expects the MPC to increase the MPR by 25-50bps, aiming to make interest rates more attractive and alleviate pressure on the foreign exchange market. However, he cautioned that such an increase could further strain businesses by increasing financial costs.
Tobi Ehinmosan, a macroeconomic analyst at FBNQuest Capital Research, predicted that the MPC would maintain its hawkish stance, as inflation remains high and the outlook for relief appears bleak. Ayodele Akinwunmi, Senior Relationship Manager at FSDH Merchant Bank, pointed to the CBN’s heavy reliance on Open Market Operations (OMO) to curb liquidity, with N7.6 trillion in OMO sales in 2024’s first nine months, a stark rise from just N150 billion during the same period in 2023.
Despite the ongoing tightening measures, Khan suggested that the November rate hike may be the final increase of the current cycle, with previous rate hikes beginning to show their impact on the economy.
The decisions made at this meeting will provide important insights into the CBN’s strategy for addressing Nigeria’s inflation challenges and maintaining stability in the foreign exchange market.