CBN Governor, Olayemi Cardoso
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to hold its third meeting of the year on the 20th and 21st of May
As in previous meetings, experts at Cordros Capital expect the Committee to consider developments in the global and domestic economy since the last policy meeting. On the global scene, interest rates remain elevated amid the ongoing geopolitical tensions. Domestically, although consumer prices have slowed on a month-on-month basis, we note that inflation risks are skewed to the upside due to the volatility of the naira in the foreign exchange market and the anticipated review of the minimum wage. Hence, we anticipate the MPC to tighten its monetary policy, albeit moderately, to manage inflation expectations, tighten monetary conditions and reduce the negative real interest rates. Our base expectation is for a 100 basis points increase in the MPR whilst holding other parameters constant.
MPC to Raise the Monetary Policy Rate by 100bps
Despite the moderation in price increases evidenced in the decline in month-on-month inflation numbers for April, we anticipate a further tightening of the monetary policy rate. This is because (1) a one-month data release of a slowdown in prices is not sufficient for the MPC to conclude that inflation is under control, (2) inflation risks are skewed to the upside given that currency pressures have resurfaced, (3) the need to manage inflation expectations given the inflationary impact of the anticipated review of the minimum wage. Nevertheless, we anticipate a less hawkish stance primarily due to (1) the slowdown in the pace of inflation and (2) DMO’s reluctance to take interest rates significantly higher in the fixed-income market, given its impact on the Federal Government’s debt burden. Accordingly, we anticipate the MPC to raise the MPR by 100 basis points to 25.75% while holding other parameters constant.
