THUR, MAY. 18 2023-theGBJournal |The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to hold its third meeting of the year on the 23rd and 24th of May.
As in the past meetings this year, the Committee remains faced with either maintaining its hiking cycle or keeping policy parameters unchanged.
Asides from the fact that global central banks are approaching the end of the interest rate hiking cycle, we think the MPC has reached a point where overtightening becomes a concern even as the debate remains on what constitutes a neutral interest rate that will not hurt domestic growth.
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.
In our view, given that the end of rate hikes by systemic global central banks is in sight amid sticky domestic inflation, we think the MPC is likely to maintain a slower rate hike at this meeting.
Indeed, at the post-MPC conference in March, the CBN governor guided that maintaining an aggressive tightening poses a risk to financial system stability.
Accordingly, he stated that the MPC will adopt a strategy of smaller rate hikes going forward to narrow the negative real returns amid the risks of overtightening.
Consequently, we expect the Committee to increase the MPR by 50bps and retain other policy parameters.-Analysis is provided by Cordros Research.
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