CBN anticipates raising interest rates amidst rapid monetary policy shifts

In an upcoming meeting on November 20th and 21st, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN)is expected to announce a further 100 basis point hike in its Monetary Policy Rate (MPR), signalling a continued commitment to combat inflation. Since the July MPC meeting, the monetary policy landscape has undergone significant changes, accelerated by recent initiatives introduced by the Central Bank, notably in October. The decision to forego the September policy meeting due to the appointment of a new CBN governor added anticipation to this week's gathering. A report from Cordros Capital highlighted that a potential MPR increase would convey the apex bank's dedication to managing inflation, especially with short-term inflation expectations pointing towards a potential peak of 28.02 percent year-on-year in December. Maintaining the MPR at current levels is seen as incongruent with the prevailing uptick in market interest rates. Cordros Capital suggests that a further MPR increase is likely, given its role as a key signalling tool for market interest rates and the persistence of inflationary pressures. Notable changes in the monetary space include the removal of the maximum limit on the Standing Deposit Facility (SDF) and alterations to Open Market Operations (OMO) auctions. These modifications have influenced expectations for the upcoming MPC meeting. After an eight-month hiatus, the CBN auctioned OMO bills in August, with stop rates averaging 12.49 percent across various tenors. The subsequent October auctions saw increased rates, aligning with the aim of mopping up system liquidity and attracting foreign portfolio investors (FPIs). Inflationary pressures persist, with domestic prices rising to 27.33 percent as of October. Food and core baskets contributed to the upward trend. Additionally, currency pressures continue, with local players dominating the Nigerian Autonomous Foreign Exchange Market (NAFEM), although offshore investors are exhibiting renewed interest. As the MPC convenes, these factors contribute to an environment where a proactive stance on interest rates is expected to address evolving economic dynamics.