Inflation, exchange rate, interest rate in focus as new MPC holds first meeting in Nigeria

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THERE are high expectations that rising inflation, depreciation in exchange rate of the naira, raising the interest rate, among other economic issues will be the key focus of the 293rd meeting of the Monetary Policy Committee (MPC) scheduled for this week.

The Central Bank of Nigeria (CBN) announced that the MPC meeting will hold today and tomorrow in Abuja.

It will be the first this year and the first since Yemi Cardoso assumed office as the apex bank’s governor.

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Recall that at the last policy meeting of the MPC held in July 2023, the anchor rate, the Monetray Policy Rate (MPR), was raised by 25 basis points (bps) to 18.75 percent, in continuation of the apex bank’s policy onslaught against Nigeria’s high inflation rate.

However, the inflation rate has remained unresponsive to the CBN’s strategy (up 582bps since the last MPC to 29.9 percent y/y), largely due to a lack of synergy between fiscal and monetary authorities and the faulty lines in policy transmission mechanisms.

For the upcoming meeting, analysts at Afrinvest (West) Africa Limited anticipate that the MPC might further tighten the anchor rate by 100-200bps to 19.5 percent-20.5 percent, premised on stubborn domestic inflation, reluctance of global systemic central banks to cut rates and the positive but modest domestic GDP growth numbers for financial year (FY) 2023.

“However, we canvass that the monetary authority should also consider stemming the growth of money supply in the financial system as broad money supply surged 76.4 percent year-on-year (y/y) to an all-time high of N93.7 trillion as of January 2024.

“The alarming growth in money supply might be detrimental to the efforts of the apex bank to stem the runaway inflation rate. In all, we do not see the MPC keeping rates constant given the need to incentivise liquidity mop-up to tame inflation. Hence, a ‘hold’ stance is highly unlikely,” the analysts stated.

Meanwhile, the MPC nominees have assured Nigerians that the foreign exchange and food crisis facing the country would soon be over.

President Bola Tinubu recently forwarded to the Senate for confirmation, names of nominees into the MPC.

The appointees spoke during their screening by the Senate Committee on Banking, Insurance and Other Financial Institutions, chaired by Senator Adetokunbo Abiru. Six out of the nominees, who appeared for the screening, answered questions on required urgent solutions to forex volatility and food crisis in the country.

First to face the committee was the Director-General of the Securities and Exchange Commission (SEC) Lamido Yuguda. He lamented that the value of the naira, as it is today, is not real, having lost its intrinsic value but that the MPC would join other stakeholders to get it stabilised.

“The value of any currency is measured by the goods and services that it can buy. The naira as it is today, does not possess that value sufficiently which is being critically looked into,” Yuguda stressed.

In his submission, the nominee from Lagos State, Dr Mustapha Akinkunmi, said the way out now is to target the exchange rate and not inflation as has been done without much result.

He said, “More proactive way of addressing the naira volatility problem at hand is for the CBN to target the exchange rate itself and not inflation. The inflation the country is facing now is largely that of food inflation, which is beyond CBN but for the entire country.

“Production and distribution of food commodities across the country would help to reduce the food inflation while the aggressive target of the exchange rate would help to stabilise the naira with the required increase in productivity.”

Similarly, the nominee from Imo State, Mrs Aku Odinkemelu, said productivity is the key to arresting the volatility of naira and food inflation.

The Senate has now approved 12 members who will participate in the MPC meeting going forward as required by law.

The CBN officials, including Olayemi Cardoso, the CBN governor, who will chair the MPC and his four deputy governors – Mohammed Abdullahi, in charge of Economic Policy; Bala Bello, Corporate Services; Emem Usoro, Operations and Philip Ikeazor, Financial System Stability – are members of the committee.

Other members as approved by the senate include Lamido Yuguda, Jafiya Lydia Shehu, who is the Permanent Secretary of the Ministry of Finance; Murtala Sabo Sagagi; Aloysius Uche Ordu; Aku Pauline Odinkemelu; Mustapha Akinwumi and Bamidele Amoo.