MPC: Analysts Predict Steady Interest Rates as Energy Costs Pose Inflation Risks

Nume Ekeghe

As Nigeria’s Monetary Policy Committee (MPC) prepares to meet today and the day after, analysts are projecting that interest rates will remain steady, even as emerging risks from the energy sector threaten to push inflation higher.

In their outlook on the upcoming MPC meeting, analysts at Afrinvest highlighted that while inflation has slowed, energy costs continue to present significant upside risks.

“Domestic Macroeconomy: MPC Expected to Hold Rates as Energy Cost Presents Upside Inflation Risks,” the firm said, adding that inflation data from the National Bureau of Statistics (NBS) shows a decline for the second consecutive month. In August, the headline inflation rate dipped to 32.15 per cent year-on-year, compared to 33.40 per cent in July.”

“This annual print, 11bps higher than our projection of 32.04per cent, stemmed from slower-than-expected moderation in month-on-month price growth to 2.22 per cent from 2.28 per cent reported in July – albeit, below the 12-month average of 2.43 per cent,” Afrinvest stated.

Breaking down the Consumer Price Index (CPI), Afrinvest noted that food inflation eased slightly, driven by the green harvests and softer price increases in commodities like tobacco, tea, cocoa, and coffee. Annual food inflation now sits at 37.52 per cent, down from 39.53 per cent, the lowest in seven months. However, core inflation, which excludes food prices, surged to 2.27 per cent in August, marking the strongest monthly rise since March. Transportation, household equipment, and utility costs were key drivers of this trend, with month-on-month increases of 2.7 per cent, 1.9 per cent, and 1.9 per cent, respectively.

In contrast, analysts at Cowry Assets struck a more optimistic tone, citing favorable inflation trends in both headline and food inflation. “Cowry Research notes a favorable downward shift in both headline and food inflation trends, signaling a significant change in the inflation trajectory,” the firm said.

According to Cowry Assets, aggressive monetary policy by the Central Bank of Nigeria (CBN) has played a crucial role in this moderation. The CBN has raised interest rates to 26.75 per cent, and government initiatives to stabilize food prices have contributed to the easing inflationary pressures. Cowryassets projects inflation to ease further in September to 30.95 per cent, as the harvest season boosts food supply and relieves some of the economic strain caused by rising prices.

Looking ahead to the MPC meeting, Cowry Assets believes the committee may take a cautious stance. “At the next Monetary Policy Committee meeting next week, it is expected that given the progress of the recent efforts at taming inflation, the committee may adopt a wait-and-see approach to monitor price developments closely and evaluate the full effect of previous rate hikes on the economy,” the analysts stated. This approach would allow the MPC to assess whether further tightening is necessary or if the current trajectory is sufficient to maintain price stability.

The combination of aggressive monetary policy, harvest season benefits, and energy sector risks will shape the inflation outlook as Nigeria navigates through a period of economic uncertainty.