Inflation, FX Liquidity Challenges, Others Top Agenda as MPC Makes Crucial Decisions Today

•Analysts predict hike in lending rates

James Emejo in Abuja

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will today disclose the outcome of its first meeting under the reconstituted committee led by the CBN Governor, Mr. Olayemi Cardoso.

The country’s rising inflation which is currently at 29.90 per cent as at January 2024, including the scarce FX challenges which had affected prices of basic items including drinking water is expected to top the committee’s discussions.

The meeting is particular crucial as it would help to determine the CBN’s policy direction for the economy as well as woo or deter foreign investors.

Most especially, it would effort the CBN governor opportunity to further assuage the concerns of Nigerians over the current hardship resulting from some of the bank’s recent policy initiatives aimed at resetting the economy.

The committee held its last meeting in July 2023, when the benchmark interest rate was raised by 25 basis points to 18.75 per cent from 18.50 per cent.

Hiwever, analysts foresee an increase in the Monetary Policy Rate (MPR) given that money supply had been identified as contributing to current inflationary pressures apart from food inflation.

A raise in the benchmark interest rate will further affect affect the already high cost of lending by commercial banks.

An economist at the Olabisi Onabanjo University, Prof. Sheriffdeen Tella, however said the MPC should vote to keep borrowing at the current rate.

He added that the focus should rather be on stabilising the country’s exchange rate regime, which is the major reason for the increased cost of production and price indices.

He said, “I don’t expect the MPC to increase interest rate because it is very clear that the drivers of inflation are not the influx of money in the economy.

“It is about exchange rates, so raising the interest rate will be counterproductive because they are saying banks shouldn’t lend money and that would increase the cost of borrowing.

“So I don’t expect it to increase, it should remain the same and their focus should be on how the exchange rate can be stabilised.

“If they say liquidity is too much, we should ask whose hand it is. Tightening the credit or reserve requirement may not disturb anything. I believe that they should leave the rates as they are presently if they cannot reduce them.

“The government is also doing some interventions so let’s see what that would do to the economy.”