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HomeExecutive BriefAs MPC round ups rate-setting meetings, analysts see possible MPR hike

As MPC round ups rate-setting meetings, analysts see possible MPR hike

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Today, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will conclude its final meeting for 2022. At the meeting, critical considerations will include the rising global and domestic inflationary pressures, unabating global hawkish monetary policy stance across major central banks, economic growth, exchange rate and the interest rate environment.

We expect the recently released statistics on the Consumer Price Index (CPI), economic growth, and FX pressures to serve as the core base upon which deliberations will be made.

Rising inflation pressures in the global and domestic markets have been the CBN’s narrative for its recent hawkish stance, as seen in the previous three meetings.

Headline inflation for Oct-2022 accelerated to 21.09 percent y/y, the ninth consecutive month of increase, from 20.77 percent in the prior month. However, the MPC can take succour in the fact that m/m inflation increases have slowed considerably in recent months (to 1.24 percent in Oct-2022).

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Another consideration is the depreciating naira and the inability of the CBN to attract Foreign Portfolio Investments (FPIs). Since its last meeting in Sep-2022, the Naira has lost 4.2 percent and 2.1 percent, exchanging at N750.0/$ and N445.7/$ in the parallel market and the I&E window, respectively.

Lastly, dollar supply from FPI flows remains underwhelming despite the recent rate hikes, as the CBN remains the primary supplier of dollars in the I&E window. Lastly, African peers and most advanced economies have continued to hike interest rates to tackle inflation and attract FPI flows (for African economies).

Putting these factors together, we believe the MPC will continue to maintain a tough stance on monetary policy. We expect that the aggressive monetary stances abroad will push the MPC’s decision towards protecting dollar inflows and tempering capital flight.

Thus, our view is that the MPC will HIKE its benchmark interest rate to continue its fight against rising inflationary pressures in the country.

However, there is a strong justification for a HOLD as we expect them to consider tempering the hikes, particularly in the face of slowing m/m inflationary pressures and the recent surge in borrowing costs.

~United Capital Plc

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