Rising Inflation Remains Major Concern as MPC Meets Tomorrow

James Emejo in Abuja

As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) commences its 286th meeting on Monday, the sustained inflationary pressure remains a major challenge for the apex bank.

The Consumer Price Index (CPI), which measures the rate of change in prices of goods and services, maintained its upward trajectory to 18.60 per cent year-on-year in June, compared to 17.75 per cent in the corresponding month of 2021, the National Bureau of Statistics (NBS).
This is the highest rate of change in prices recorded since January 2017 month-on-month, the headline inflation rate also strengthened to 1.82 per cent in June and 1.78 per cent in May.

The composite food index, on annual basis, rose to 20.60 per cent in June, representing a decline of 1.23 per cent compared to 21.83 per cent in June 2021.
The rising inflation poses a significant challenge to the central bank in particular which had hoped to contain the index within the six per cent to nine per cent band.

The MPC while citing inflationary concerns, during its last meeting in May, had resolved to raise the Monetary Policy Rate (MPR) by 150 basis points to 13 per cent in response to the global inflationary pressures which had continued to hurt economies around the world, after holding the benchmark rate constant at 11.5 per cent for about two and a half years.

The MPR is the rate at which the apex bank lends to commercial banks and often determines the cost of funds in the economy.
But as the MPC resumes its regular meetings on Monday, analysts said inflation was likely to top its agenda following the current commodities supply gaps in the global economy, occasioned primarily by the war between Russia and Ukraine which had sent energy prices to the ceiling.

Speaking on their expectations for the MPC,  and the likely direction of their deliberation, analysts in separate interviews with THISDAY yesterday,  analysts predicted that the committee is likely to retain all rates and ratios, to watch the impact of the previous increase on the economy.
Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr Chijioke Ekechukwu, said,  “It took the Monetary Policy Committee a very long time before they increased the MPR to 13 per cent from 11.5 per cent·

“This was not because they didn’t need to increase, even as the inflationary trend and threats were putting pressure on them to increase, but because, increasing the rates would dovetail into high-interest rates by Deposit money banks which would ultimately increase the inflation rate, which CBN was battling to stabilize – Money supply to the system was going to go down.

“The same foregoing objectives of the CBN will influence their decision in the forthcoming MPC meeting.
“I see the MPC retaining all rates and ratios, to watch the impact of the previous increase on the economy.”
On his part, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr Idakolo Gbolade, said the committee will give attention to fighting inflation as it continues to destabilise the economy as well as address foreign exchange shortages.

He said: “I think the most important point on the agenda of the CBN should be how to moderate inflation, reduce scarcity of foreign exchange and implement measures that will boost the economic activities of Nigerian businesses, especially the manufacturing and agricultural sectors.

“The major reason for increasing the MPR rate to 13 per cent has not abated, inflation has not shown signs of slowing down, food inflation is majorly on the increase coupled with the Russia- Ukraine war which could greatly affect wheat prices that will lead to increase in the cost of staples like bread to name a few.”
In his forecast, he said, “The committee will likely hold to see how the effect of its increase in interest rates last month would play out.

“My strong advice to the committee would be to revert to the previous interest rate of 11.5 per cent and ensure the inflationary pressures are curtailed by increasing access to foreign exchange to enable the manufacturing sector to remain afloat and also implement policies that would bridge the gap between official exchange rate and the black market rate of the dollar which has created opportunities for corruption to persist.

“The CBN should intensify and evaluate its various interventions to ensure that are serving the primary purpose they are intended for and bring culprits shortchanging the system to judgment.”