MPC: CBN to Keep Interest Rate on Unchanged- Analysts
The monetary policy committee (MPC) of the Central Bank of Nigeria (CBN) will likely keep benchmark interest rate on hold as inflation pressures eased, analysts predicted. The CBN will hold its first committee meeting in the year 2025 on 19, and 20 of February, according to its updated notice.
Analysts are projecting a pause to the prolonged rate-hiking cycle, allowing the impact of previous rate increases to fully transmit through the economy. The committee’s decision will be primarily influenced by near-term expectations of moderating inflation and the continued stability of the naira at the Nigerian Foreign Exchange Market (NFEM).
The naira has been relatively stable in the NFEM market, primarily supported by improved FX liquidity from foreign portfolio investors (FPIs) and the CBN. Analysts noted that the adoption of the Electronic Foreign Exchange System (EFEMS) has helped tame excess naira volatility through increased market transparency.
In the oil sector, crude oil production averaged 1.63 million barrels per day in Q4-2024, representing a 5.2% increase from the 1.55 million barrels per day recorded in Q3-2024. Analysts attribute this growth to increased pipeline surveillance and the increased oil production from new oil fields.
Cordros Capital Limited estimates that gross domestic product will expand by 3.70% in Q4-2024, compared to 3.46% in both Q3-2024 and Q4-2023. Based on strong growth expectations, analysts said the monetary authority will be guided by an optimistic outlook, confident that the economy will remain on a growth trajectory despite the impact of monetary tightening.
The committee is likely to emphasise the importance of price stability as a critical driver of sustainable growth over the medium term. In a latest report, the National Bureau of Statistics (NBS) said headline inflation declined to 24.48% in January based on its rebased consumer price index, from 34.80% in Dec. 2024.
The Nigerian economy has maintained gross domestic product (GDP) growth despite heavy uncertainties triggered by various reforms. Key determinants for the monetary policy direction appear to have stabilised, with inflation, the naira, and economic growth looking much better.
“We believe the MPC anticipates a moderation in inflation in the near term, supported primarily by naira stability. Additionally, we see limited room for further interest rate hikes despite the existing negative real rate of return,” Cordros Capital Limited said in a note.
Analysts are of the view that the benchmark interest rate hike is less attractive for economic growth, considering the potential impact on borrowing costs for both corporations and the government.
“We do not expect the MPC to consider a rate cut given still elevated inflation, persistent global economic risks, and the need to maintain the naira’s attractiveness to foreign investors and sustain FX inflows,” Cordros Capital said in a note.
Ahead of the committee meeting, the investment firm said it expects the MPC to pause its tightening cycle, opting to assess the impact of previous rate hikes on the anticipated disinflation process before making further adjustments.
Analysts said their baseline view is for the MPC to adopt a hold stance and retain other policy parameters. #MPC: CBN to Keep Interest Rate on Unchanged- Analysts Naira Dives Low as Data Shows FX Inflows Fall by 62%
