Firms, Businesses Await CBN’s Decision On Rates

There is apprehension in the economic circles over the direction of monetary policies as the Central Bank of Nigeria (CBN) continues to review its economic policies in order to decide on exigent monetary policies in view of global and national outlooks.
Investment bankers, financiers, investors, business owners, as well as  research and advisory experts agreed, Monday, that the decisions of the apex bank’s Monetary Policy Committee (MPC) will have a significant influence on the general economic outlook, including the flows of investments between the fixed and non-fixed security markets.
But experts differed on the possible headline decision by the apex bank. While the majority feel that the time is ripe for the CBN to abandon its long-running dove stance and hike the Monetary Policy Rate (MPR).
Many experts said the bank may opt to retain the rate, its classical policy view in the recent period. The MPR has been unchanged at 11.50 per cent since September 2020, until yesterday when it was changed to 13.5 percent.
Financial Derivatives Company (FDC), headed by Bismarck Rewane, a member of President Muhammadu Buhari’s Presidential Economic Advisory Council (PEAC), said there was “no more room for the MPC to wiggle” with the continuing high inflationary trend.
The National Bureau of Statistics (NBS) last week released its latest inflation report, showing that consumer price inflation rose for the third consecutive month to 16.82 per cent in April 2022, the highest level in eight months.
While there was almost consensus by analysts on inflation increase, the slope of the curve was steeper than expected: some 50 basis points above the average projection and 72 basis points above the International Monetary Fund’s (IMF’s) 2022 country projection of 16.1 per cent.
“The probability of monetary tightening has become infinitely more likely. If the CBN were to hike rates at its next MPC meeting, it would not be an outlier.
“This is because most apex banks in both advanced and emerging economies, including Sub-saharan Africa, have begun another cycle of aggressive tightening and increase in interest rates to dampen inflation,” FDC stated.
“In all, we think the Committee would retain the MPR at 11.5 per cent alongside other monetary policy parameters.
“However, we do not rule out the possibility of a 50 basis points hike in the MPR given the hawkish rendition among global central banks and the indirect impact of the Russia-Ukraine crisis on domestic inflationary pressures,” Cordros Capital stated.
According to the  FDC, the unrelenting rise in inflation supports the argument for a rate hike.
Former President of Chartered Institute of Stockbrokers (CIS) and Managing Director, Arthur Stevens Asset Management Limited, Mr Olatunde Amolegbe, said rate retention appeared to be unsustainable in the light of current economic realities.
He said: “The CBN has maintained the same monetary stance since 2020 but this is appearing to be unsustainable now with the increasing pressure on Naira and the tightening stance that we are seeing in the developed markets, which is likely to put further inflationary pressure on our economy.
“The recent inflation figures would have also sent warning signals to the CBN of the need to act quickly and decisively. I, therefore, think it might be time for them to lean towards a gradual tightening regime aimed at stemming naira depreciation and controlling inflation.”
The naira depreciated by 1.2 per cent to N606.00 per dollar at the parallel market at the weekend, just as Nigeria’s foreign exchange reserves (forex) fell to their lowest level in eight months to $38.84 billion. But the naira was flat at N419.03 per dollar at the official Investors and Exporters (I & E) Window.
On the domestic front, the sharp increase in headline inflation to 16.82 per cent in April 2022, the highest since August 2021 will be a cause for concern to committee members, particularly as the trend will continue in the coming months due to the pass-through impact of elevated global energy prices.