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MPC to Increase Rate by 100bps to 25.75% – Analysts

The monetary policy committee (MPC) of the Central Bank of Nigeria (CBN) would increase the benchmark policy rate by 100 basis points to 25.75%, investment banking firms said in their pre-meeting note.

Both Cordros Capital Limited and Cowry Asset Management Limited projected a 100 basis point increment in the benchmark interest rate this week.  The monetary authority increased the policy rate by 6% already in the first quarter, despite a slowdown in economic growth and negative signals from private sector business performance.

Analysts said that despite the moderation in price movements in April, the market anticipates a further tightening of the monetary policy rate. “This is because a one-month data release of a slowdown in prices is not sufficient for the MPC to conclude that inflation is under control,” Cordros Capital Limited stated in its note.

Analysts noted that inflation risks are skewed to the upside given that currency pressures have resurfaced. The firm also noted the need to manage inflation expectations given the inflationary impact of the anticipated review of the minimum wage.

“Nevertheless, we anticipate a less hawkish stance primarily due to the slowdown in the pace of inflation and the Debt Management Office’s (DMO) reluctance to take interest rates significantly higher in the fixed-income market, given its impact on the Federal Government’s debt burden.”.

Analysts at Cordros Capital anticipate that the MPC will raise the MPR by 100 basis points to 25.75% while holding other parameters constant. This week, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to hold its third meeting of the year on the 20th and 21st of May.

At the meeting, the monetary authority committee would consider developments in the global and domestic economies since the last policy meeting.  Analysts noted that interest rates have remained elevated in global markets amid the ongoing geopolitical tensions.

The latest data from the National Bureau of Statistics showed inflation printed higher at 33.69% in April, although consumer prices have slowed on a month-on-month basis.

In its commentary note, Cordros Capital Limited stated that inflation risks are skewed to the upside due to the volatility of the naira in the foreign exchange market and the anticipated review of the minimum wage.

“We anticipate the MPC tightening its monetary policy, albeit moderately, to manage inflation expectations, tighten monetary conditions, and reduce the negative real interest rates.”. Headline inflation maintained an upward trend in April, edging higher by 43 basis points to 33.69% from 33.20% year on year in the previous month.

Data showed inflation pressure moderated as prices slowed, primarily due to reduced exchange rate pass-through given the appreciation of the naira. The contraction was also supported by improved food supplies following the commencement of the off-season harvest and a slowdown in logistics costs.

Precisely, month-on-month inflation slowed by 73 basis points to 2.29% in April from 3.02% in March. Food inflation moderated by 112 bps to 2.50% in April from 3.62% in March, leading to an increase of 40.53% year on year compared with 40.01% year on year growth in March, 2024.

Similarly, core inflation slowed by 34bps to 2.20% month-on-month in April from 2.54%, resulting in a year-on-year increase of 26.84% versus 25.90% reported in March. “We expect the Committee to note the moderation in price increases, potentially citing the naira appreciation as a strong factor.

“However, we expect the Committee to highlight that the upside risks to inflation remain potent given the renewed pressure in the FX market and the potential review of the minimum wage, which was announced by the Federal Government to be implemented in May,” analysts at Cordros Capital said in a pre-MPC note. #MPC to Increase Rate by 100bps to 25.75% – Analysts FX Inflows Down 69% as Foreign Investors Pullback

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