The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is scheduled to hold its fifth meeting of the year on September 23 and 24, 2024. As the meeting approaches, all eyes are on the Committee, which is expected to carefully assess global and domestic economic developments since its last policy decision. In an environment marked by monetary easing from major global central banks and a resilient Nigerian economy, the MPC faces a critical decision.
Globally, key central banks such as the U.S. Federal Reserve, the European Central Bank (ECB), and the Bank of England have started to loosen their monetary policies. Inflation in many advanced economies has trended closer to target levels, signaling reduced inflationary pressures. This policy shift has increased optimism that emerging markets, including Nigeria, may see a resurgence in foreign investments as global investors seek higher yields.
On the domestic front, Nigeria’s economic performance has remained resilient, with the country’s Gross Domestic Product (GDP) growth sustaining its upward trajectory. In Q2 2024, the economy recorded significant progress, particularly in the oil sector, which expanded by 10.15% year-on-year, compared to 5.70% growth in Q1 2024. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has contributed to this positive trend by implementing robust measures to reduce oil theft and improve production monitoring.
Despite the growth, there are warning signs ahead. The recent increase in the price of Premium Motor Spirit (PMS), which surged by 50.5% to NGN855.00/litre, threatens to put upward pressure on inflation in the coming months. Nigeria’s headline inflation rate has decelerated for two consecutive months, dipping to 32.15% in August 2024 from 33.40% in July. While food prices have seen some relief due to improved harvests, core inflation remains a concern, driven by higher fuel prices and persistent foreign exchange challenges.
Foreign exchange volatility continues to be a key issue. Despite increased FX inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM), the naira remains under pressure, weakened by a growing gap between demand and supply. However, CBN efforts to bolster FX reserves, which have reached a 20-month high of USD36.94 billion, and improvements in inflows from both local and foreign sources, offer hope for some stability in the currency.
Given these dynamics, analysts expect the CBN’s MPC to adopt a cautious approach in its upcoming meeting. While the inflation risks remain tilted to the upside, the recent decline in headline inflation and the easing of global monetary policies are likely to prompt the MPC to hold the Monetary Policy Rate (MPR) at 26.25%. This stance would allow the previous rate hikes to fully permeate the economy, while also giving the Committee the flexibility to address potential inflationary shocks from rising PMS prices.
The anticipated decision aligns with the CBN’s broader objective to balance inflation control with the need to sustain economic growth. Furthermore, with global interest rates trending downwards, the pressure to raise rates to prevent capital outflows has diminished. All indications point to a status quo at the September meeting, as the MPC looks to navigate the fine line between fostering growth and containing inflationary pressures.
This pivotal decision will set the tone for Nigeria’s economic trajectory in the final quarter of 2024, as stakeholders keenly await the MPC’s official policy direction.
