The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to sustain its inflation-tightening policies at its final meeting of the year amid rising inflationary pressures. Analysts project an additional rate hike to combat the upward trend in inflation, currently at 33.88%, as well as broader economic challenges.
Background and Current Context
At its September meeting, the MPC raised the Monetary Policy Rate (MPR) by 50 basis points to 27.25%. Concerns driving the decision included core inflation, fiscal deficits, food price pressures, and rapid money supply growth.
Despite some optimism at that time, with efforts to address food supply deficits and the anticipated positive impact of refined petroleum products from the Dangote Refinery, inflation trends have since reversed.
Economic Indicators in Focus
- Inflation:
Headline inflation has resumed its upward trajectory, driven by rising energy prices (+2.2% month-on-month) and foreign exchange volatility. - Purchasing Managers’ Index (PMI):
October’s composite PMI weakened to 49.6 points, falling below the 50-point threshold that signals growth. Key sectors, including food, beverages, and tobacco, contracted due to diminished purchasing power and exchange rate instability. - Fiscal Deficit and Debt:
Nigeria’s national debt hit ₦134.3 trillion in H1 2024 (approximately 52% of GDP), with projections suggesting it could exceed ₦150 trillion by 2025 due to fiscal pressures.
Analyst Projections
Afrinvest:
- Anticipates at least a 25bps hike in MPR, reflecting the MPC’s commitment to controlling inflation and achieving a positive real interest rate to attract foreign investment.
- Notes the broader challenge of balancing inflation control with growth, given rising fiscal deficits and exchange rate pressures.
Meristem Securities:
- Projects a 50bps hike to 27.75%, citing:
- Reversal of disinflationary trends globally.
- Decline in oil prices.
- Continued naira depreciation.
- Emphasizes the MPC’s focus on price stability, exchange rate management, and sustaining investor interest in Nigeria’s fixed-income market.
Conclusion
Given the persistent inflationary pressures and economic uncertainties, the MPC is widely expected to adopt a hawkish stance. Whether the rate hike will be 25bps or 50bps, the committee’s decision will be pivotal in shaping Nigeria’s monetary landscape as it seeks to stabilize the naira, curb inflation, and address fiscal challenges.