Market Expectations Differ as CBN Holds Policy Meeting
Godwin Emefiele, CBN Gov

Market Expectations Differ as CBN Holds Policy Meeting

Amidst cautious predictions across the Broadstreet, this week, members of the Central Bank of Nigeria (CBN) monetary policy committee (MPC) will be holding their first meeting in the New Year to deliberate on economic performance and market direction. 

At the last policy committee meeting, members voted to hike the benchmark Interest rate to 16.50% from 15.5% in a dirty fight against rising headline inflation which put people on a tight edge across the country in 2022.

In a brief, analysts at Cowry Asset Management Limited said the policy committee is likely to turn its gaze back to price stability in 2023 as multiple objectives on the CBN’s table will test monetary policy effectiveness.

MarketForces Africa recalls that the November rate hike was the third interest rate hike used by the monetary authority to curb the worsening consumer price index, but analysts maintain that interest rate hike would remain an ineffective tool for the purpose.

In 2022, turning fast and furious against Nigeria’s double digits high inflation rate, the policy committee raised the benchmark interest rate three times, totalling 500 basis points after two years of a dovish stance. CBN had maintained a pro-growth stance until the consumer price level which the committee had attributed to supply chain disruption worsened.

Meanwhile, some analysts believe that the apex bank is chasing the wind with policy tools having noted that demand is not the driving force behind inflation rate jumps.  In December, data from the statistics office show the headline inflation rate moderated by 13 basis points to 21.34%. 

The decline was not attributed to the effectiveness of the monetary authority policy implementation but the high base effect of the previous year.  In the last quarter of 2022, there were inflation-propelling developments that signalled Nigeria’s headline consumer price index would worsen. 

Year-end demand and an associated increase in prices across fast-moving consumer goods and level of imported products from foreign markets.  At the same time, the pump price of petroleum products rose significantly toward the yuletide and there is still a supply gap up till recently. Worsening exchange rates in the foreign exchange markets forced importers to record losses, lifting production costs. 

Despite markets-induced price pressures, December inflation data reflects there was moderation, a figure that doesn’t go down well with the street. Nigerians have been asking if inflation data is meant for the locals or Broadstreet as a tool for money pricing.  Across the local markets, prices of everything have worsened by more than 300%. Prices of basic needs are practically unaffordable for most Nigerians.

It has become survival of the fittest for large numbers of Nigerians that are out of paid jobs. With a 33.3% unemployment rate, Nigerians have slipped into red economic zone even with social spending. 

Official data indicates that 133 million Nigerians are living below poverty index as basic lifestyles become seriously unaffordable. In part, this has resulted in social vices including kidnapping, insurgency and gangsterism. The growing youth population are finding succour in dubious online scam ranging from relationship scam to credit card theft. 

Nigeria’s economic policy has been on autopilot. The current administration has built a Chinese wall between the fiscal and monetary policy committee ahead of the 2023 election. >>>Inflation Rate Drops to 21.34% in Nigeria

Across the street, Nigerians believe that the Progressives have failed to deliver results despite the highest level of debt on record. Nigeria’s public debt is expected to hit NGN77 trillion after the securitisation of ways and means collections from the CBN.

Under Godwin Emefiele, the CBN Chief, the apex bank’s independence has worsened. It appears in a decade that Emefiele’s monetary policy has been coloured with political inks. 

He has exposed the apex bank’s dirty clothes to politicians who have found him uninteresting in maintaining balance.  Against the CBN Act 2007, the apex bank chief flaunts the extent law without fear of probe or punishment or both from the government. Buhari is the government, some Nigerians said and he’s the one Emefiele gave access to use the apex bank 

Breaking well-spelt rule is an effrontery to the Nigerian law and its corruption, Broadstreet analysts said. “There’s should be no excuse for any CBN gov to break a rule that forms the bedrock of monetary policy of a nation …It’s just unprofessional”

As the Policy committee set to meet, certain things come to mind; what will CBN do ahead of the election?  The decision to hike the benchmark interest rate by 50 basis points would worsen lending rate in an economy that’s already battling with inflation and unemployment. 

Keeping policy rates will mean a decision to maintain the status quo, meaning Nigerians have to flow with existing macroeconomic conditions. Lower rates will raise liquidity in the local economy and possibly push inflation up as producers’ cost decline.

In all, the redesign of new naira notes, despite the errors, would reduce vote buying but could worsen demand for dollars.

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