MPC: Experts Fear Another Hike in Interest Rates

MPC: Experts Fear Another Hike in Interest Rates

With the hawkish stance taken by the majority of the Monetary Policy Committee members at the last meeting, expectations are high that another interest rate hike will be announced after the upcoming MPC meeting.

Last month, the MPC under Governor Olayemi Cardoso increased the monetary policy rate by 400 basis points, and some members pushed for an even higher hike. The implications of another rate hike are significant, and could have major impacts on the economy.

“Given the imperative to curb inflationary pressures, which could pose social challenges and impede long-term growth prospects, I am persuaded that the MPC must adopt an assertive stance by tightening monetary policy measures, with a medium-term inflation target of 21.40 percent by the end of 2024 in mind, Cardoso said in his personal statement.

“We expect a further 150bps of tightening in this cycle, taking the end of first quarter (Q1) 2024 policy rate to a high of 24.25 percent. There are risks to our view that all 150bps of further tightening will be delivered at a single meeting, not least because of the Federal Government’s need to keep debt-service costs contained. For now, however, this is our central scenario,” said Razia Khan, managing director and chief economist, Africa and Middle East Global Research at Standard Chartered Bank.”

London-based Capital Economics said the minutes of the February meeting showed hawkish arguments for aggressive interest rate hikes to moderate inflation and support the naira.

“We expect this to continue at Tuesday’s meeting, with a 200 basis points hike (to 24.75 percent),” it said on Friday.

There’s been much to give Cardoso cheer ahead of Tuesday’s meeting, according to the economic research firm.

It pointed out that the CBN announced that a $7 billion backlog of imports has finally been cleared, adding that the naira itself has reacted positively, appreciating by around 10 percent to about 1,400/$.

“Even if the naira has new found stability, there’s more work for the MPC to do. Inflation surged to 31.7 percent y/y in February. On Tuesday, we think the hawks will win out once again, even if the rate rise is moderated somewhat,” the firm said.