Analysts see cut in CBN benchmark rate at next MPC meeting over surging inflation
By Oludare Mayowa
Analysts have projected that the Central Bank of Nigeria (CBN) will likely increase its Monetary Policy Rate (MPR) at its next meeting later in the month when its monetarists meet to review the macroeconomic situation in a bid to curb surging inflation.
According to analysts at the Financial Derivatives Company (FDC), led by economist Bismarck Rewane, the “unrelenting rise in inflation will be a major issue at the MPC meeting later this month.”
“The CBN cannot be oblivious to a rate of inflation which is now almost 7 percent above the upper limit of its inflation range (6-9 percent),” FDC wrote in its economic bulletin released on Friday.
“It, therefore, may consider tightening before the meeting or symbolically increasing the rates of its special bills, currently at 0.5 percent p.a.”
The National Bureau of Statistics (NBS) announced on Friday the spike in headline inflation to 15.75 percent in December from 14.89 percent.
“It, therefore, may consider tightening before the meeting or symbolically increasing the rates of its special bills, currently at 0.5 percent p.a.
“The naira had wobbled throughout 2020, partly as a result of the wide gap between the rate of inflation (15.75 percent) and basement level rate of 0.5 percent p.a on 91-day T/Bills.
The FGN has also announced plans to securitize its overdraft at the CBN, roughly estimated at N11 trillion (30.14 percent of money supply).
“This means more securities available for institutional investors and a possible increase in interest rates,” FDC said.
FDC projected further rise in the headline inflation in January but noted that the pace of increase could slow due to the re-opening of land borders and increased output due to harvest.
The monetarists are expected to meet for the regular gathering at the first Monetary Policy Meeting (MPC) on January 25/26.
The last time the MPC members met, the MPR was retained at 11.5 percent as part of moves by the CBN to boost credit expansion to the productive sectors of the economy and accelerate economic recovery.