The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) commenced its final two-day meeting of 2024 today in Abuja. Analysts widely anticipate an interest rate hike of 25 to 50 basis points (bps), driven by persistent inflation and naira volatility.
Inflation Trends and Economic Context
According to the National Bureau of Statistics (NBS), Nigeria’s headline inflation rose to 33.88% in October 2024, up from 32.70% in September. This represents the third-highest inflation level in recent history, following a peak of 34.19% in June 2024.
Since initiating monetary tightening in 2022, the CBN has increased the Monetary Policy Rate (MPR) by 1,525 bps to combat inflationary pressures. Of this, 825 bps were implemented after economic reforms, such as President Tinubu’s fuel subsidy removal and foreign exchange adjustments.
Analyst Projections
- Razia Khan, Standard Chartered Bank:
- Predicts a 50 bps hike to 27.75%.
- Notes inflation is driven by supply-side shocks, including flooding and fuel price hikes.
- Ayodeji Ebo, Afrinvest:
- Expects a 25-50 bps hike to attract investment and stabilize the naira.
- Warns this could increase financial costs for businesses.
- Tobi Ehinmosan, FBNQuest Capital Research:
- Foresees continued rate hikes due to unrelenting inflationary pressures.
- Charlie Robertson, FIM Partners UK Ltd:
- Assumes no rate change, citing fragile naira confidence.
To curb inflation, the CBN has aggressively deployed Open Market Operations (OMO) to reduce liquidity. In the first nine months of 2024, the bank sold N7.6 trillion in OMO, a significant increase from N150 billion during the same period in 2023.
OMO sales help the CBN influence interest rates and manage liquidity, impacting investment, consumption, and economic growth.
Some experts, like Razia Khan, believe the November rate hike may be the last in the current tightening cycle as the cumulative effects of earlier increases continue to influence the economy.
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