In news reports, the CBN is posed with tough choices on its policy initiatives regarding inflation and interest rates. The apex bank appears conflicted on wether to continue the increase in the benchmark interest rate or to hold on and continue to monitor the economic responses to its policy initiatives. The choice to hold the interest rate unchanged or further increase in benchmark lending rate is the kernel of the raging debate that permeates the financial markets to the boardroom of the apex bank as the the Monetary Policy Committee (MPC) begins its crucial two-day meeting today.
At its last meeting in March, the MPC increased the benchmark Monetary Policy Rate (MPR) by 200 basis points to 24.75 per cent, raising the lending rate further after an initial increase of 400 basis points to 22.75 per cent in February. The cumulative increase of 600 basis points showed a moderating influence on the spiralling inflation, the key target of the aggressive tightening by the apex bank. Nigeria’s headline inflation recorded its slowest increase in nearly a year in April, outperforming all analysts’ expectations of a higher increase and raising hopes that spiralling consumer prices might be on a gradual decline. The latest report by the National Bureau of Statistics (NBS) showed that the Consumer Price Index (CPI) rose by 0.49 percentage points to 33.69 per cent in April, as against 33.20 per cent in March.
It is the slowest increase since June 2023, when it rose by 38 basis points. Against analysts’ prediction that the inflation rate would rise by more than 100 basis points to cross the 34 per cent level, the NBS report showed that month-on-month inflation eased by 73 basis points to 2.29 per cent in April as against 3.02 per cent in March. The point of success is the hotbed of debate. While most finance and economic experts opined that the apex bank might need to sustain its tightening stance with further rate hikes, there is a cautionary tone from many others that the CBN might need to allow the moderating influence of the previous hikes to fully reflect on the economy.
However, in the event of a decision on a rate hike, most analysts expect a reduction in the quantum of increase, with average expectation of 100 basis points. This implies a possible increase in MPR to 25.75 per cent.
