Nigeria MPC Expected to Raise Interest Rates Again to Combat Inflation and Fiscal Issues

The Central Bank of Nigeria's Monetary Policy Committee (MPC) is expected to raise interest rates again at its final meeting of 2024, addressing rising inflation and fiscal pressures. Analysts predict a 25-50bps increase, aiming to stabilize prices, manage money supply growth, and attract foreign investment amidst a tough economy.
As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) convenes today for its final meeting of 2024, analysts predict a continued inflation-tightening stance, with a likely increase in the benchmark interest rate. This comes amidst rising inflation and significant fiscal pressures, raising questions about the sustainability of Nigeria's economic stability.

At its last meeting in September, the MPC raised the Monetary Policy Rate (MPR) by 50 basis points to 27.25% in response to persistent inflationary concerns, especially core inflation driven by energy costs and structural inefficiencies. Despite a decline in headline inflation at the time, the Committee highlighted the need to address money supply growth, fiscal deficits, and food price pressures. Governor Olayemi Cardoso acknowledged the Federal Government's efforts to combat food supply issues and ease transport costs through initiatives like the Dangote refinery, which is expected to reduce petroleum product imports and ease external reserve pressures.

However, with inflation rising again and fiscal challenges intensifying, the MPC faces a complex decision. Afrinvest analysts point to the broad economic challenges, including inflationary signals from global markets, a weaker purchasing managers’ index (PMI), and the expansion of the money supply, which has reached N109.0tn. Additionally, Nigeria’s national debt continues to rise, with projections that it may surpass N150tn by 2025.

Meristem Securities suggests that while global factors, such as the reversal of disinflationary trends in major economies, will influence decisions, domestic factors like rising inflation, weak PMI readings, and the devaluation of the naira will likely push the MPC towards another rate hike to stabilize prices and attract foreign investment.

Despite the complexities, analysts forecast a likely 25-50 basis point increase in the MPR, marking a decisive end to the year’s monetary policy deliberations. Investors are expected to keep a keen eye on this meeting as it could signal how the MPC intends to balance inflation control with fiscal stability heading into 2025.