Cordros expects 1% policy rate raise as MPC meets next week

• Hike in rate likely, but wrong policy – Economist

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria will raise its Monetary Policy Rate by 100 basis points, or one percentage point, at its November meeting next week, Cordros Securities has said.

The MPC will hold its last meeting for 2022 on Monday and Tuesday next week, 21 and 22 November.

Nigeria’s Monetary Policy Rate currently stands at 14 per cent, having been raised by the committee twice this year. At the end of its meeting held on May 23 and 24, 2022, the committee raised the rate by 1.5 percentage points to 13 per cent. It followed this with a percentage point increase to 14 per cent at the end of its meeting in July.

Next week’s meeting comes against a similar background with previous ones, with central banks raising rates, the risk to growth notwithstanding, Cordros said in a note to its clients on Thursday.

“In our view, the absence of a significant shock to economic activities since the previous meeting will provide respite that the economy likely maintained its steady growth path in Q3-22,” it said.

It said this scenario would give to the committee reason to maintain its fight against the stubbornly high inflationary pressures, given that a continued negative real interest rate could dampen domestic investments and undermine the local currency’s stability.

It said a further tightening of the policy rate is necessary to re-anchor inflation expectations, noting that an econometric study by the CBN shows it is the most significant driver of actual inflation in the country.

“Consequently, we think a further interest rate hike is likely at the meeting. Accordingly, we expect the committee to raise the MPR by an additional 100bps,” it said.

An economist with the Lagos Business School, Dr. Austin Nweze, also expects MPC to raise the rate by one percentage point, as it did in July. This, he said, follows from the MPC’s inflation-targeting policy. “But it is a wrong policy,” he told Daily Trust.

“What the CBN should be concerned with now is how to grow production in the economy.”

Headline inflation for October rose to 21.09 per cent, up from 20.77% in September, the National Bureau of Statistics announced Wednesday. Food inflation rose to 23.72% from 23.34% over the same period.