FRI, JAN 05 2024-theGBJournal| It is expected that the domestic economic activities will remain resilient in 2024FY as the negative impact of the reforms in 2023FY subside.
Accordingly, the non-oil sector is expected to grow higher than 2023FY levels, complementing our anticipated oil sector’s growth.
We believe the growth outlook will give the MPC members some comfort to march on with interest rate hikes while tracking real-time data to know how to react when there is a sharp deviation from expectations.
Elsewhere, gleaning insights from the inflation section of our report, our expectations suggest that reducing the interest rate will not be appropriate until near-term inflation expectations start falling and the disinflationary process is firm.
We do not expect the disinflation process to begin until late 2024FY. Moreover, we discussed in the fiscal section of this report that the fiscal deficit in 2024FY is likely to print higher than 2023FY levels, serving as a critical risk to domestic price pressures.
Away to the external sector, global central banks are expected to have reached the peak of their monetary policy tightening cycles. The financial markets expect
key central banks to start cutting policy rates from H2-24.
That said, interest rates are likely to remain significantly higher than pre-pandemic levels, as the current expectation is that investors should only be expecting fewer rate cuts given that inflation may remain high relative to historical levels.
Notably, given the US Fed’s more substantial confidence in its outlook for a ‘soft landing’, it has penciled down fewer rate cuts in 2024, confirming investors’ fears that interest rates could remain higher for longer.
All told, to maintain its price stability mandate, anchor inflation expectations, increase incentives for holding the naira, and (4) boost FX inflows from foreign investors, the CBN will have to remain hawkish in its monetary policy decisions.
Consequently, we think the MPC may opt for up to a 300bps increase in the MPR over H1-24 before keeping the rates steady by H2-24. Barring any significant deviation from our current expectations, reducing the interest rate is not under our baseline scenario.-Analysis is provided by Cordros Research
X-@theGBJournal|Facebook-the Government and Business Journal|email:gbj@govbusinessjournal.com|govandbusinessj@gmail.com
