Analysts Expect CBN to Raise Rate to 25.75% to Attract Hot Money

By Aduragbemi Omiyale

To attract Foreign Portfolio Investments (FPIs) so as to achieve a stable exchange rate system, the Central Bank of Nigeria (CBN) may be forced to increase the Monetary Policy Rate (MPR) by 1.00 per cent to 25.75 per cent from 24.75 per cent.

This is the view of analysts at Meristem Securities in a note obtained by Business Post as the market awaits the outcome of the Monetary Policy Committee (MPC) meeting on Tuesday.

The committee commenced its meeting on Monday and by afternoon, the Governor of the CBN, Mr Yemi Cardoso, is expected to address the media on the key decisions taken at the gathering.

Recently, Mr Cardoso hinted of a possible rate hike because of the stubborn inflation, which has failed to slow down.

The National Bureau of Statistics (NBS) said last week that inflation in Nigeria rose by 33.69 per cent in April 2024 as a result of rising prices of goods and services.

“Given the committee’s commitment to a contractionary stance and the monetary authority’s mandate to ensure price stability, we anticipate a 100 basis points hike in the monetary policy rate to 25.75 per cent, while maintaining other parameters at their current levels.

“However, we acknowledge the possibility of a HOLD stance due to the moderation in month-on-month inflation figures and our expectation of a disinflationary trend in the coming months,” a part of the note stated.

The central bank has continued to hike the rates to attract foreign exchange (FX), which the country needs at the moment to stabilise the Naira.

According to Meristem analysts, despite the CBN’s efforts to strengthen the Naira, it depreciated by 6.03 per cent to N1,533.99/$1 since the last meeting.

They highlighted the impact of foreign capital inflow on the exchange rate, as evidenced by the sustained depreciation of the Naira against the Dollar, causing the spread between the parallel market rate and the official market rate to further widen to N55/$1 as of May 16, 2024, reversing the convergence seen earlier in the year.

“On the back of this, we opine that the pressure on the Naira will remain intense in the short to medium term, thus, MPC may consider further tightening measures to ease and improve FX inflows,” they noted.