- The Monetary Policy Committee of the Central Bank of Nigeria will hold its 299th meeting on February 19 and 20
- The meeting will determine the monetary policy decision and direction of the CBN
- There are speculations as to a likely drop, hold, or hike decision of the MPC toward the interest rate
The 299th and first Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN) for 2025 is expected to be held on February 19 and 20.
The MPC meeting has been rescheduled twice from January 27 and 28 to February 17 and 18 due to the delay in releasing the rebased Consumer Price Index (CPI) report by the National Bureau of Statistics (NBS), which is crucial to the committee’s decision.
Economic analysts and the business community are waiting with bated breath and anticipating the monetary decisions of the committee, especially concerning the Monetary Policy Rate (MPR) or interest rate, Cash Reserve Ratio (CRR), Liquidity Ratio (LR), and adjustments to the asymmetric corridor around the MPR.
At the last MPC meeting of 2024 held in November, the CBN raised the MPR to 27.50 per cent from 27.25 per cent it voted at its 297th meeting in September, marking the sixth time the apex bank hiked the MPR in 2024. This represents an 8.75 per cent or 875 basis points increase throughout the year, as the MPR rose from 18.75 per cent in January 2024 to 27.50 per cent as of November 2024.
Despite outcries against the CBN’s orthodox approach, the apex bank’s governor, Olayemi Cardoso, has often noted that the tight monetary stance is crucial to tame soaring inflation.
Apart from helping to keep inflation at bay, Cardoso also said the rate increase is responsible for other improvements in the economy such as increased capital inflows, relative stability in the foreign exchange market, and a reduction in exchange rate disparities
As the committee prepares for the 299th MPC, experts and analysts are speculating the direction of the CBN’s monetary decisions: will the CBN drop, hold the current rate, or continue its hike approach seeing that the inflation rate rose to 34.80 per cent in December 2024 from 34.60 per cent in November?
A drop in interest rate is unlikely
There have been calls for the CBN to reduce the interest rate, especially among manufacturers and businesses because of the increased cost of borrowing brought about by the policy.
However, the MPC is unlikely to toe this part. This is evident in the upward trajectory the Cardoso-led CBN has maintained toward the interest rate.
If the CBN considers reducing the interest rate, the decision may potentially lead to a slowdown in inflation as manufacturers will borrow at a relatively cheaper rate, which will in turn lead to a decline in the price of goods and services.
A hold stance is the most favoured option
The consensus and the most favoured option among experts and analysts is for the CBN to hold its current interest rate of 27.50 per cent.
This is premised on the belief that a hold stance will help the apex bank to sustain the country’s fragile economic recovery while managing inflationary pressures, as well as to allow the effects of prior rate adjustments to permeate the economy.
Analysts also say that with the likely inflationary slowdown and the relative stability of the exchange rate in 2025, the MPC may consider maintaining policy rates since the persistent hike is hinged on the bank’s inflation-taming agenda.
Recall that an asset management firm, Meristem Securities, in its 2025 Full Year Outlook, projected a hold stance on the MPR for most of 2025 because of an expected moderation in inflation during the year.
It further noted that it cannot rule out the possibility of a 100 basis points increase in the MPR during the first quarter of the year.
Meristem Securities said, “Looking ahead, we see the potential for a less aggressive monetary policy stance, particularly as the monetary authority has hinted at its intention to evaluate the impact of prior policy measures.
“This outlook is further supported by our expectation of modest moderation in inflation during the year.
“Given the risk that premature easing could reverse the progress made in 2024 and exacerbate inflationary pressures, we expect the MPC to maintain a HOLD stance for most of 2025.
“A shift to a more dovish position may occur in the final quarter of the year. While unlikely, we cannot entirely rule out the possibility of an additional 100 bps hike in the MPR during the first quarter of 2025.”
Also, a hold stance will mirror the strategy of other central banks such as the National Bank of Rwanda (BNR), which recently kept its key interest rate at 6.5 per cent to control inflation without disrupting economic activity, and Ghana’s MPC, which maintained its policy rate at 27 per cent in response to persistent inflationary pressures and global uncertainties.
Rwanda and Ghana are among the five African central banks that were tipped to hold interest rates to tackle double-digit inflation and the pressures of a stronger dollar in November 2024. Eight others, including South Africa and Kenya, were expected to cut interest rates as a monetary easing strategy.
Will CBN further hike interest rates?
In anticipation of the announcement of the monetary policy decision of the CBN, analysts and economic watchers wonder if the apex bank will adopt a tight monetary stance going by its antecedents, especially under the leadership of Cardoso.
Seeing that the MPC has consistently increased the interest rate in the over 18 months of Cardoso’s leadership, a further hike of the rate won’t be a surprise.
The CBN may want to adopt this approach to consolidate the gains of previous interest rate hikes and to control excess liquidity, which often leads to inflation going by the textbook economics principle that too much money chasing too few goods and/or services increases inflationary pressures.
Maintaining a tight policy stance can help the CBN to continue to address inflationary pressures, stabilise the exchange rate, and build a resilient macroeconomic environment.
This sentiment is also shared by Bandele Amoo, an MPC member, who noted that while inflation and exchange rate stability are improving, the effects of prior policy measures have not fully materialised.
For Amoo, a modest 25-basis-point increase in the MPR is ideal to sustain progress without placing undue pressure on the real sector, particularly corporate borrowers.
Whichever way the MPC chooses to go at its 299th meeting will ultimately determine the economic trajectory of Nigeria and set the tone for most of the changes that will occur in the broader economy.
298th MPC: CBN expected to raise interest rates as inflation surges
Meanwhile, TheRadar earlier reported that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) was expected to vote for a further interest rate hike at its 298th meeting, which was held on Monday and Tuesday, November 25 and 26.
This was predicated on the CBN’s antecedent of hiking interest rates in the hopes of taming inflation, which has continued to soar.
