The Coronation Merchant Bank has projected that the Monetary Policy Committee will raise the benchmark lending rate by at least 50 basis points this year to ensure price stability and economic growth.
The Merchant Bank stated in its outlook that it expects a conservative approach to interest rate fixing as the MPC intends to achieve its major goals of low inflation rates and improved economic growth.
The economy is already been challenged by the persistent rise in the prices of goods and services. With the fore knowledge that this year is an electioneering campaign year where we expect that money supply would increase when campaigns begin and this will steer up the inflation rates. Therefore, the Bank argues that a one off 50 basis points increase of the monetary policy to 12 percent is not far-fetched.
The rate-fixing MPC, in the height of the COVID-19 threat in 2020, reduced the MPR by 100 basis points in September 2020 from 12.5 percent to 11.5 percent. Since then, the rate has remained unchanged as the committee maintained the rate throughout last year amid the high inflationary pressures and sluggish economic growth.
At the first MPC meeting held in the country on the 24th and 25th of January 2022, the committee decided to retain the MPR at 11.5% as a way to quicken the economic recovery from the pandemic effect and redirect its focus towards other factors that attributed to the high inflation rate of 15.63 percent in the economy.
However, Mr. Biodun Adedipe, an economist and the Chief Executive Officer (CEO) of B. Adedipe Associates Limited mentioned that inflation is not a serious concern for the Nigerian economy provided all value chains are undisrupted and energy supply is consistent within the economy.
With the renewed energy cost crisis (i.e. a surge in the price of diesel, increase in the price of petrol accompanied by a scarcity and the rise in the price of cooking gas), some experts have warned that the spike in inflation is inevitable.
Therefore, in the Banks outlook report released recently, it stated “we expect the monetary policy committee to maintain its cautious stance on monetary policy parameters”. It also included that a rate hike of the MPR is a possibility as “the committee is still leaning towards striking a balance between supporting GDP growth while maintaining stability across inflation, exchange rate and market rates.”
Coronation Bank went further to state that the country’s inflation rate is expected to finish the year at a moderate rate of about 13.9 percent. This projection is within the range of other forecasts, including that of the International Monetary Fund (IMF), World Bank and Augusto and Co.
Also, the outlook report estimated that the Gross Domestic Product (GDP) growth rate will average at about 2.6 percent this year, an 0.1 percent point lower than the IMF predictions, after reporting that the economy had recorded for consecutive quarters of positive growth since its last recession in 2020. It however based this growth on the increased vaccination rate, stable oil price of above $65 billion per barrel, increase in the contribution of non-oil sector to the economy and sustained growth of major sectors etc.
However, the Bank was not so optimistic about the naira value being strengthened during the fiscal year of 2022 as it mentioned that it could fall to N434/$1 at the Nigerian Autonomous Foreign Exchange (NAFEX) window.