The Central Bank of Nigeria’s Monetary Policy Committee (MPC) is poised to announce a substantial 100 basis point increase in the Monetary Policy Rate (MPR) during its upcoming meeting on November 20 and 21. This surprising decision, if confirmed, reflects the apex bank’s resolute stance in the battle against soaring inflation, hinting at a potential shift in the country’s interest rate landscape.
Originally slated for September, the monetary policy meeting was delayed due to the appointment of the new CBN Governor. Since the last MPC gathering in July, there has been a whirlwind of regulatory adjustments initiated by the CBN, especially from October onward, setting the stage for a potentially groundbreaking policy shift.
The speculated 100 basis point increase in the MPR is seen as a strategic move to counteract the surging near-term inflation expectations, projected to peak at an alarming 28.02 percent year-on-year in December. With market interest rates on an upward trajectory, the MPC’s decision to align the MPR with these elevated rates is anticipated as a proactive measure against inflationary pressures.
In the wake of the last MPC assembly in July, the CBN has implemented noteworthy changes in the monetary landscape. The removal of the maximum limit on the Standing Deposit Facility (SDF) and adjustments in the Open Market Operations (OMO) auctions have marked a departure from previous norms.
The Central Bank’s reintroduction of OMO bill auctions after an eight-month hiatus, coupled with subsequent activities, suggests a dual objective. While these auctions aim to drain system liquidity, they also serve as a magnet for foreign portfolio investments (FPIs). The dwindling liquidity resulting from repeated OMO auctions is expected to drive up local yields, enhancing the allure of naira assets.
