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As projected, the Monetary Policy Committee (MPC) is expected to raise the Monetary Policy Rate (MPR) by 50 basis points (bps) as it concludes its meeting.
In the May MPC meeting, the MPR was raised by 50bps, making it the seventh consecutive rate hike in H1 2023, bringing the rate to 18.5% from the previous 18%. The CBN’s hawkish stance is aimed at tackling inflation and maintaining macroeconomic stability.
Headline inflation has been a significant factor influencing the MPC’s monetary policy decisions. Despite other macroeconomic indicators showing improvement, inflation has remained a challenge, surging to 22.79% in June 2023, the highest in 19 years.
The CBN’s efforts to control inflation through rate hikes have had limited impact, as inflation in Nigeria is not solely driven by increased money supply. These rate hikes have increased borrowing costs for businesses, and they may also be affected by FX unification and fuel subsidy removal.
The MPC’s priority remains attracting foreign portfolio investors and managing price pressures, even at the expense of growth. However, it is essential to strike a balance between controlling inflation and supporting economic growth.
Nigeria’s real GDP growth has slowed, recording 2.31% in Q1 2023, compared to 3.11% in the same quarter of the previous year. While inflation may widen negative real interest rates, the authorities are likely to keep a close eye on interest rates, considering the new administration’s preference for lower rates.
Considering these factors, a 50bps rate hike is forecasted at the conclusion of the MPC meeting, as the CBN may not be ready to halt the rate hikes entirely yet.
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