By Chinwendu Obienyi
As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) kicks off today, there are strong expectations in different quarters with analysts stating that the MPC could raise, hold or maintain its hiking cycle.
The meeting has also put rumors to bed as to whether the Governor of the CBN, Godwin Emefiele, would chair the committee given his ongoing travails in the hands of tje Department of State Security, DSS.
The Nigerian business community was thrown into confusion following the continued spat between the Department of State Services (DSS) and the CBN Governor in recent times. The CBN in a statement, signed by its Director, of Corporate Communications, Osita Nwanisobi, said “the Governor resumed with renewed vigour to perform his duty ahead of the first Monetary Policy Committee (MPC) meeting of the year scheduled for January 23 to 24, 2023.
Mr. Emefiele remains committed to performing the task before him in line with his oath of office and the policy direction of President Muhammadu Buhari”. At the meeting, one of the things that the Committee is expected to assess is the domestic and global economic environment in the context of developing key economic and financial indicators since its last policy meeting in November. It will be recalled that the MPC in an effort to curb the fast-running inflation rate in the country, raised its interest rate four times last year.
However, analysts at Cordros Research noted that the MPC is likely to be concerned about the pressure on the domestic economy, given the slow growth recorded in the third quarter of 2022, more so that the manufacturing sector posted its first contraction since the fourth quarter of 2020. They added that with inflationary pressures remaining intact, a slight ease in December 2022 (which was reported last week) will likely be welcomed among the Committee members. “Elsewhere, the prospect of global central banks embarking on smaller interest rate hikes could also influence the MPC’s decision to tow the same line amid concerns about the domestic economy. Thus, we expect the MPC to opt for smaller rate hikes in the short term, given the build-up of pressures in the local economy and as the risks of overtightening come to the forefront of policy discussions. Consequently, we expect the Committee to increase the MPR further by 50 basis points – 100 basis points and retain other policy parameters”, they said.
For analysts at Cowry Assets Limited, “the policy committee may be tempted to pedal softly on its tightening stance by a token hike of 25 basis points. We believe that a moderate reversal in the headline numbers will skew the voting pattern of the committee members in favour of maintaining a tightening stance. Regardless, the lag-effect from the policy tightening may take longer in reality as Nigeria has a weak policy transmission system.”
For their part, analysts at Financial Derivatives Company (FDC), said inflation is expected to ease further in January, although it is projected to average 16.3 per cent in 2023.
Whilst noting that they expect the MPC to become less hawkish at the end of its meeting, the analysts said, “As long as the CBN remains committed to tackling inflation, the high interest rate environment will persist in 2023.”
FDC analysts had prior to the release of the December inflation figure noted that the MPC at its January meeting “could likely increase the MPR by 50 basis points as inflation remains elevated. Whilst this could be a less aggressive move, it is likely to push up short-term rates in the near term.
The CBN’s hawkish stance is expected to tighten liquidity in the system and keep the general interest rate elevated. This will lead to a high cost of borrowing and limited access to finance for individuals, corporations and the government. It also raises the risk of default on loans for financial institutions which can push up impairment costs”.