As the Monetary Policy Committee (MPC) gears up for its unprecedented second meeting of the year, scheduled for March 25th and 26th, analysts brace for a pivotal decision amid deviations from its conventional bi-monthly schedule. The impending meeting follows the heels of February’s momentous 400 basis points hike in the monetary policy rate, reflective of the Committee’s steadfast commitment to curbing inflationary pressures. Despite the lingering uncertainties surrounding the full ramifications of the interest rate hike on domestic prices, recent inflation figures, soaring to a staggering 31.70% in February, cast a stark reminder of the prevailing inflation risks. In light of these mounting concerns, market prognosticators anticipate the MPC to uphold its stringent monetary policy stance, aiming to further constrict monetary conditions, ameliorate negative real interest rates, and fortify inflationary expectations.
Against the backdrop of these monetary deliberations, the economic landscape paints a picture of resilience tinged with challenges. The Composite Purchasing Managers’ Index (PMI) for January and February, though marginally dipping from previous highs, continues to hover above the expansionary threshold, underscoring the economy’s steadfastness amidst burgeoning inflationary pressures and foreign exchange constraints. However, February’s slight downturn in the PMI accentuates the struggles faced by industries grappling with exorbitant production costs, currency depreciation, and tepid consumer demand. Nonetheless, buoyed by the anticipation of improved forex liquidity and the forthcoming festivities of Ramadan and Easter, analysts project the Composite PMI to sustain its momentum above the crucial 50-point threshold in March.
On the energy front, domestic crude oil production witnessed a modest decline to 1.54 million barrels per day in February, albeit remaining within a trajectory of anticipated growth in Q1-24. Despite the downturn, analysts foresee a marginal uptick in oil production, forecasting an average of 1.57 million barrels per day for the first quarter, albeit signaling a deceleration from the robust growth observed in Q4-23. Consequently, economic pundits project a moderated GDP growth rate of 2.30% in Q1-24, indicative of a slowdown from the preceding quarter’s expansionary figures. Acknowledging this nuanced economic landscape, the MPC is poised to confront the delicate balance between fostering output growth and safeguarding price stability.
As domestic prices persist on their upward trajectory, the specter of inflation looms large over the economic horizon. With headline inflation surging to a historic 25-year peak of 31.70% in February, exacerbated by a confluence of factors including currency depreciation, dwindling food supplies, and soaring energy costs, the MPC confronts the daunting task of taming inflationary pressures. Against this backdrop, market analysts expect the Committee to underscore the persistent inflationary risks stemming from exchange rate pass-through, elevated energy costs, burgeoning fiscal deficits, and escalating insecurity in key food-producing regions, thereby underscoring the imperative of maintaining a vigilant monetary policy stance.
Meanwhile, the Central Bank of Nigeria (CBN) continues its concerted efforts to stabilize the naira in the forex market, buoyed by a slew of policy interventions aimed at bolstering investor confidence and enhancing forex liquidity. Noteworthy initiatives include augmenting yields on naira-denominated assets to deter currency speculation, clearing outstanding foreign exchange backlogs, and revamping the foreign exchange framework to incorporate Bureau de Change operators. The commendable strides in the FX market have engendered renewed investor confidence, culminating in a notable appreciation of the naira against major currencies.
Furthermore, global central banks maintain a cautious stance, opting to keep policy rates steady amidst lingering inflationary pressures and geopolitical uncertainties. From the US Federal Reserve to the European Central Bank and the Bank of England, monetary authorities tread cautiously, cognizant of the delicate balance between fostering economic growth and containing inflationary risks.
In anticipation of the impending MPC meeting, market sentiment remains cautiously optimistic yet attuned to the pressing need for decisive monetary action. Against the backdrop of a resilient yet nuanced economic landscape characterized by stubborn inflationary pressures and formidable external headwinds, all eyes turn to the MPC as it convenes to chart a course towards fostering economic stability and bolstering investor confidence in the face of prevailing uncertainties.
