The Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) is expected to uphold its inflation-fighting agenda during its final meeting of the year. Analysts suggest another interest rate hike may be imminent as inflationary pressures resurface.
In its September meeting, the MPC raised the Monetary Policy Rate (MPR) by 50 basis points to 27.25%, citing persistent concerns over core inflation, fiscal deficits, and food price pressures. Despite efforts to stabilize headline inflation earlier in the year, recent trends show a renewed upward trajectory, compelling the MPC to maintain a hawkish stance.
Key Factors Influencing the Decision
Analysts point to several economic indicators that are likely to dominate the MPC’s discussions:
- Rising Inflation: Inflation has climbed to 33.88%, driven by energy price increases, food supply disruptions, and foreign exchange volatility.
- Purchasing Managers’ Index (PMI): The composite PMI fell to 49.6 points in October from 50.5 in September, indicating contraction in key sectors like industry and slower growth in agriculture.
- Money Supply Expansion: Broad money supply (M3) increased by 1.6% month-on-month in September, adding to inflationary pressures.
- Fiscal Pressures: The national debt profile has reached ₦134.3 trillion, approximately 52% of GDP, with projections suggesting it could surpass ₦150 trillion in 2025.
- Exchange Rate Volatility: The naira continues to depreciate, losing 8% in October at the NAFEM window, further exacerbating production costs.
Analysts’ Projections
Financial experts from Afrinvest suggest that these economic pressures, coupled with the committee’s focus on achieving a positive real interest rate to attract foreign investments, may prompt an additional rate hike. A 25 basis-point increase to the MPR is predicted to address inflation and stabilize the economy.
Meristem Securities echoed this sentiment in its macroeconomic report, highlighting the dual impact of global and domestic factors influencing the MPC’s decision. The firm noted that structural issues like foreign exchange instability, energy price hikes, and fiscal imbalances will weigh heavily on the committee’s considerations.
Government Efforts
The MPC has acknowledged efforts by the Federal Government to mitigate food supply challenges through duty-free imports of essential commodities. Additionally, the potential contributions of Dangote Refinery to moderate transportation costs and reduce foreign exchange demand for fuel imports are expected to play a significant role in easing price pressures over time.
Economic Outlook
While the MPC aims to curb inflation and attract foreign investments, businesses and households continue to grapple with rising costs and declining purchasing power. A rate hike could further tighten borrowing conditions, impacting economic activity in the short term.
The outcome of today’s meeting will set the tone for Nigeria’s monetary policy direction as the country faces mounting fiscal and economic challenges heading into 2025.
