CBN seen raising interest rate to 27.25% next week

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to increase the benchmark interest rate by 100 basis points to 27.25% next week, analysts at Lagos-based Cordros Securities have said.

The MPC will meet on July 22 and 23 for their fourth time this year.

The analysts said the country’s headline inflation increased further in June to 34.19% year-on-year from 33.95% in May primarily due to the exchange rate pass-through on commodity prices, high energy prices and increased food shortages.

“We expect the committee to point out the persisting inflationary pressures, attributing it to increased food prices and the depreciation of the naira,” they said. “We also expect the MPC to acknowledge the recent efforts of the government to increase food supplies and slow down food prices, including the distribution of fertilisers and the removal of import duty on specific food commodities.”

They said the naira has remained volatile in recent weeks mainly due to the tight liquidity in the FX market.

“Precisely, the CBN sustained its weak FX intervention, while foreign investors stayed on the sidelines mainly due to convertibility risk concerns, causing FX liquidity to dwindle,” the analysts said. “We expect the MPC to acknowledge the increased naira volatility, ascribing it to rising demand whilst encouraging the CBN to increase its efforts to boost liquidity in the FX market and stabilise the naira.”

They expects the MPC to maintain their tight monetary policy stance to ensure price stability, reduce the negative real rate of return, manage inflation expectations, and stabilize the naira.

“However, given the slower pace of the increase in the inflation rate and an anticipated disinflation trend for the remainder of the year, we foresee a moderate increase than in previous meetings. Therefore, we anticipate the MPC will raise the MPR by 100 basis points to 27.25% while keeping other parameters unchanged,” they said.