SAT NOV 23 2024-theGBJournal| Analysts at Cordros Research and money market see the likelihood of the Central Bank of Nigeria’s CBN) Monetary Policy Committee (MPC) deepening rates hike next week when the Committee meets to decide the future of interest rates.
Market participants have raised their expectations for the Committee to take a significant step with their next rate move given the weak inflation and overall economic data as well as the unimpressive business activity indicators, and the significant headwinds from persistent structural constraints in the supply chain and the recent upward adjustment in PMS prices.
Cordros Research said in a note to theG&BJournal that while these supply-side bottlenecks will continue to shape the near-term inflation trajectory, they anticipate the MPC will maintain a hawkish stance in line with the goal to anchor inflation expectations and achieve positive real returns to enhance the economy’s attractiveness to international capital, to support naira stability.
”Given this backdrop, we forecast a further 50bps increase in the MPR to 27.75%, with the other policy parameters maintained,” Cordros projects.
Money markets also are now pricing in a 50bps hike given that Global Central Banks are extending rate cuts. The market expects the MPC to acknowledge the global trend of monetary easing while maintaining an optimistic outlook for further rate cuts, which would help mitigate capital flight risk.
However, the Committee is likely to underscore the sustained geopolitical uncertainties stemming from the Russia-Ukraine conflict and ongoing tensions in the Middle East.
The MPC of the CBN is set to convene for the final meeting of the year on 25 and 26 November.
Since the last meeting in September, inflation has taken a sharp turn upward, rising for two consecutive months due to the pronounced effects of the PMS price surge and recent flooding in food-producing areas.
With inflation risks firmly skewed to the upside, market expects the MPC to implement another rate hike to reaffirm their commitment to price stability, anchor inflation expectations, and achieve positive real returns.
This comes even as global economies pivot towards a more accommodative stance.
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