The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), in its upcoming decision on interest rates, has made a critical decision following recent increases in petrol prices, which compound an additional challenge for the country’s recovery.
A drop in Nigeria’s inflation rate to 32.15% in August 2024 has fueled hopes that the rate could be reduced in order to stimulate economic growth. However, there are concerns over how the 11% increase by the Nigerian National Petroleum Corporation’s (NNPC) Limited would play out in terms of possible higher costs within the same period.
“This move will automatically surge up inflation, hence the tiresome position that the MPC is in,” Tilewa Adebajo, CEO at The CFG Advisory, said.
There has been a hike in petrol prices from N858 ($0.53) per liter in Lagos to N950, and in northeastern states to N1,019, reflecting a 50 percent increment within weeks. The economy is likely to be greatly affected by this huge change in pricing.
“The inflation rate remains high and may stop falling because of fuel price adjustments,” said Mr. Ayodele Akinwunmi, Senior Relationship Manager with FSDH Merchant Bank. He added that it was maybe too early to change the monetary policy stance in view of the still-high inflation rate.
Market players, businesses, consumers, and others will be eagerly waiting on the results when the Monetary Policy Committee sits from September 23rd to 24th, 2024, to have these crucial policy discussions.
Analysts forecast that the MPC can either leave the benchmark policy rate at 26.75% or pause the rate tightening cycle in order to assess what impact the previous rate hikes have had on the economy.
“The fuel price hike has thrown things off,” Agusto Consulting’s Head of Financial Institutions Ratings, Ayokunle Olubunmi, said. “I think the best thing is to hold rates.”
In July, the CBN hiked the policy rate by 50 basis points to 26.75% during its 296th meeting. The MPC also adjusted the asymmetric corridor around the Monetary Policy Rate (MPR) to +500/-100 basis points.
This month’s MPC discussion is an event many are waiting for with bated breath, as yesterday’s decision will be quite impactful on Nigeria.
