What to expect as CBN’s MPC meeting commences

Nigerians are waiting for details on how the Central Bank of Nigeria would swing interest rates, among other things, as the 284th meeting of the Monetary Policy Committee (MPC) begins.

The Central Bank of Nigeria’s Monetary Policy Committee convened for the first time this year and unanimously decided to hold the benchmark interest rate at 11.5% while keeping all other monetary parameters unchanged.

Despite a jump in inflation in December 2021, the decision was made. The committee pointed out that the increase in the country’s inflation rate in December 2021 is due to higher demand during the holiday season, implying that the spike in the numbers is just transitory.

However, a slew of economic trends, including supply shocks from the Ukraine-Russia crisis, fuel scarcity, reaction to the CBN’s e-invoice program, and the persistence of inflation, have given the central bank more to think about due to increased demand during the holiday season, implying that the surge in numbers could be a one-time occurrence.

The Optics

• Nigeria’s inflation rate changed direction in February as it rose 15.7% from 15.6% recorded in the previous month. This represents a 0.1% point increase compared to the rate recorded in January 2022.
• Notably, food inflation rate, which is a closely watched index dropped to 17.11% in February 2022 from 17.13% recorded in the previous month.
• Nevertheless, the increase in overall price levels of items, according to the Centre for Promotion of Private Enterprise (CPPE), is at odds with inflation figures issued by the National Bureau of Statistics (NBS). While the NBS’s technical computation of inflation rates was not in question, Yusuf said that prices for products used by ordinary households had risen by 30 to 100 per cent in the previous year.
• The Central Bank of Nigeria (CBN) also introduced cash collection centres called Bank Neutral Cash Hubs. This is to enable it to reduce cost and improve operational efficiency in the country’s cash management value chain.
• The Central Bank of Nigeria (CBN) stated that commercial banks’ non-performing loans (NPLs) levels in Nigeria fell below 5% to 4.94% at the end of December 2021, for the first time in about a decade.
• In February 2022, the CBN extended the Naira for Dollar scheme from the IMTOs to the IEFX window. Specifically, the CBN released instructions that outline that it will facilitate payment of N65 for every US dollar repatriated and sold at the Investors and Exporters Window.
• According to data analyzed by the International Monetary Fund, the Nigerian currency rate has depreciated by 10.6% per year since 1973. This was revealed in the “Nigeria: Selected Issues Paper” study.
• Nigerian banks have informed their customers that the limit on the Naira Card has been reduced due to dollar scarcity.
• The Central Bank of Nigeria’s implementation of the e-evaluation and e-invoice policy has caused major backlash from port authorities, the senate and also clearing agents.

What experts are saying

Mosope Arubayi, an economist at IC Group in Lagos stated that CBN would likely leave the rates unchanged in order not to detort growth.

She said, “Economic growth in Nigeria is still at suboptimal levels and the CBNis unlikely to buck their trend of undermining consumer-price pressures to achieve their growth objectives,” he added, “I see them staying pat on monetary policy tools.”

Prof. Ndubisi Nwokoma, Director, Centre for Economic Policy Analysis and Research (CEPAR), University of Lagos, stated that the CBN options were between holding or increasing the rates.

“I think the meeting will be a mixed grill. Inflation is not falling as has been trending in the past few months. The last NBS report showed Inflation trended slightly upwards so it needs to be tamed by either holding rates or increasing slightly to restrict credit,” he said.

On the other hand, Nwokoma said that the preponderance of uncertainties in the economy would need making credit cheaper.

Akpan Ekpo, Professor of Economics and Public Policy at the University of Uyo, Akwa Ibom, opined that the MPC should marginally increase the monetary policy rate.

“Honestly, it is difficult to predict what will be the outcome of the MPC because of the global environment.

“The Ukraine-Russia war and the hike in interest rates by the Federal Reserve Bank of the USA; with inflation beginning to trend upwards and the Federal hike in rates as well as the Ukraine-Russia war, the MPC should marginally increase the monetary policy rate.

“This is to anticipate, that is, cushion the expected rise in inflation due to domestic bottlenecks and the global environment.”