WED, JULY 19 2023-theGBJournal |The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to hold its fourth meeting of the year on the 24th and 25th of July.
Following the suspension of Godwin Emefiele, the meeting will be chaired by the CBN’s acting Governor, Folashodun Shonubi.
Thus, we think the focus at this meeting will be setting a new tone for monetary policy direction over the next few months, in line with the monetary policy and FX reforms since 29 May.
Nonetheless, like previous meetings, we expect the Committee to consider developments in the global and domestic economy since the last policy meeting. On the global scene, systemic central banks are signalling a peak in their interest rate hiking cycles.
However, they are leaving the door open for an additional smaller rate hike in the near term. In the domestic economy, headline inflation maintained its upward trajectory, currency pressures remain intact, and there are signs that real GDP growth settled higher in Q2-23 after the cash crunch-induced moderation in Q1-23.
Asides from global central banks approaching the end of the interest rate hiking cycle, we think the MPC has reached a point where overtightening becomes a concern as the economy is already battling with the negative impact of elevated interest rates.
As such, we think the dilemma for the Committee at the meeting will remain whether to continue its rate hike to further dampen the rising inflation trajectory or adopt a HOLD stance to observe emerging developments and allow for the impact of the last rate hikes to permeate the economy.
However, at this stage, continuous increases in the MPR at a time when non-monetary factors are the dominant upside risk to near-term price pressures will undermine economic growth.
On a balance of factors, while our baseline view is for the MPC to adopt a HOLD stance at this meeting, we do not rule out a 25bps – 50bps hike in the MPR while retaining other policy parameters.-Analysis is provided by Cordros Research
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