Investment analysts are divided on whether the Central Bank of Nigeria, CBN will at the end of the meeting of its Monetary Policy Committee, MPC, raise the Monetary Policy Rate, MPR, following the three-month consecutive increase in the inflation rate.
The inflation rate rose to 16.82 per cent in April, the highest in seven months, from 15.92 per cent in March.
The rise in inflation which exceeded analysts’ projections is expected to be a major consideration for the MPC at its meeting held today and tomorrow.
At the end of its last meeting in March, the Committee retained the MPR at 11 per cent as well as other policy rates.
While some analysts projected a hike in the MPR, citing the three months rise in inflation, others however opined that the MPC will maintain the status quo again.
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According to Peter Elege, Managing Director/CEO, PFI Capital, “The CBN is caught in between the tightropes of holding all parameters constant or reviewing the benchmark rates upward. However, we opine that a hawkish stance could be immaterial in containing the rising inflation. Nigeria’s inflation has a different set of drivers (structural impediments to the food supply, requiring more fiscal efforts), which an increase in monetary policy rate may not effectively address. “Based on the above, we expect that there would be no changes in the status quo.”
Similarly, Ibukun Omoyeni, Economist with Vetiva Capital Management, said: “We recognize that Nigeria is overdue for rate hikes. Four members voted to raise interest rates in the last meeting.
“We expect a similar hawkish voting pattern but we do not see scope for a change in policy stance by the next MPC meeting. The CBN is likely to attribute the uptrend in inflation to structural factors, which are beyond its scope to tackle.”
Making a contrary projection, Afolabi Ogunlayi, an analyst with Comercio Capital, said: “Tere are several major inflationary drivers on the horizon that could push inflation higher in the coming months. On the policy front, we anticipate an upward adjustment in the MPC’s benchmark MPR to maintain positive net foreign flows while also signalling the monetary authority’s concern about inflation.”
Analysts at FBNQuest agreed with his position, saying: “We continue to see downside risks to the headline inflation rate. Our base case forecast is for the headline rate for May to surge further to 17.4%. Given the need to arrest the rising inflationary trend, we see the committee raising the MPR by 25bps at its meeting next week.”
