Ahead of MPC, IMF, Analysts Forecast Further MPR Increase

Ahead of the monetary policy committee (MPC) meeting today and tomorrow, the International Monetary Fund (IMF) and analysts have predicted a further increase in the monetary policy rate (MPR) in a bid to further rein inflation.

The fund this in its Staff Concluding Statement of the 2022 Article IV Mission on Nigeria where it commended the Central Bank of Nigeria (CBN) for tightening the MPR and urged it to maintain its stance of further tightening in response to rising inflation.

Also, analysts at Meristem forecasts a 50bps hike in the Monetary Policy Rate, while keeping other parameters unchanged.

According to the IMF, “Monetary conditions are accommodative despite tightening measures undertaken by the CBN. The mission welcomed measures taken by the Central Bank of Nigeria (CBN) to tighten liquidity and curb inflationary pressures through increasing the monetary policy rate (MPR) by a cumulative 400 basis points and raising the cash reserve ratio (CRR). However, overall conditions remain accommodative the MPR is below inflation, and financing provided to the budget and the CBN’s directed lending schemes continue to drive strong monetary expansion.

“Decisive and effective monetary policy tightening is a priority to prevent risks of de-anchoring of inflation expectations. Given the multiplicity of monetary policy tools, market segmentation, and weak interest rate transmission, the mission recommended the following measures to effectively tighten the monetary policy stance: fully sterilise the impact of CBN’s financing of fiscal deficits on money supply; stand ready to further increase the MPR to send a tightening signal continue phasing out CBN’s credit intervention programs, which expanded rapidly during the pandemic to support the economy.”

Analysts at Merristem reiterated that the MPC being confronted by the threats of slowing economic growth and rising inflation, have had to shift focus to inflation. This has led them to tighten financial conditions through policy rate hikes.

“Overall, we expect the Committee to sustain its contractionary stance through a 50bps hike in the Monetary Policy Rate, while keeping other parameters unchanged.”

They stated: “Sustaining its uptrend, Nigeria’s inflation spiked to a 17-year high of 21.09 per cent YoY in October 2022. The uptick in both the food and core indices drove the headline inflation. However, the structural challenges of poor transportation and storage facilities, the high cost of agricultural inputs, and the unabating security challenge in the food-producing states of the economy remain significant catalysts for the acceleration in food inflation.

In the same vein, core inflation trended northwards on the back of higher prices of gas, solid and liquid fuels, and transportation costs. Additionally,

the depreciation of the naira at the I&E window and the parallel market continues to pose an upside risk to inflation.”