The Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) has commenced its final two-day meeting of the year today in Abuja, with analysts forecasting an interest rate hike of 25 to 50 basis points (bps). The move is anticipated in response to Nigeria’s ongoing inflationary pressures and persistent naira volatility.
Nigeria’s headline inflation rate surged to 33.88 percent in October 2024, up from 32.70 percent in September, according to the National Bureau of Statistics (NBS). This marks a significant rise, with inflation climbing from a low of 3 percent in July 2006 to its current level, which stands as the third highest after peaking at 34.19 percent in June 2024.
The CBN has been pursuing a policy of monetary tightening to curb inflation, having raised its benchmark interest rate—the Monetary Policy Rate (MPR)—by a cumulative 1,525 basis points (bps) since 2022. This includes 825 bps implemented since mid-2023, following President Tinubu’s fuel subsidy removal and foreign exchange reforms.
Razia Khan, Managing Director and Chief Economist for Africa and the Middle East at Standard Chartered Bank, noted that the CBN could increase the MPR by another 50 bps to 27.75 percent at this meeting. Khan explained that the continued rise in inflation, particularly driven by food and transport prices, indicates that supply-side shocks are the main inflation drivers. She attributed the inflationary uptick to the delayed effects of flooding in northern Nigeria and a modest increase in fuel prices in October.
Other analysts, such as Ayodeji Ebo, Managing Director of Optimus by Afrinvest, also expect the MPC to raise the MPR by 25-50bps to maintain interest rates attractive and reduce pressure on the foreign exchange market. However, this will likely increase financial costs for companies, adding pressure to the broader economy.
Tobi Ehinmosan, a macroeconomic analyst at FBNQuest Capital Research, noted that the MPC will likely continue its hawkish stance, as inflation remains elevated and there are no immediate signs of relief. Ayodele Akinwunmi, Senior Relationship Manager at FSDH Merchant Bank, highlighted that the CBN has been using Open Market Operations (OMO) to reduce liquidity in the financial system, with OMO sales amounting to N7.6 trillion in the first nine months of 2024, compared to just N150 billion in the same period of 2023.
While the CBN has committed to tightening monetary policy as long as inflation persists, Khan suggested that the November rate hike could be the last of the current tightening cycle, as earlier measures begin to impact the economy.
The outcome of this meeting is expected to provide further insight into the CBN’s strategy for addressing Nigeria’s inflation challenges and maintaining exchange rate stability.