The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to maintain its inflation-tightening stance during its final meeting of the year, in response to mounting inflationary pressures.
At its September meeting, the MPC raised the Monetary Policy Rate (MPR) by 50 basis points to 27.25%, citing concerns over core inflation, money supply growth, fiscal deficits, and food price pressures. While headline inflation was trending downward at the time, core inflation remained persistently high, driven largely by energy costs and other structural challenges.
In the statement issued after the September meeting, CBN Governor Olayemi Cardoso noted the committee’s recognition of the Federal Government’s efforts to address insecurity in farming communities. The MPC also highlighted the importance of these efforts, stressing the need to maintain progress. Additionally, the committee commended the government’s initiatives to bridge the food supply gap, particularly through the duty-free import window for food commodities. There was also optimism regarding the potential impact of Dangote’s refinery on moderating transportation costs, which could, in turn, alleviate food price pressures in the short to medium term.
The MPC further noted that the refinery’s operations would reduce foreign exchange demand for petroleum product imports, which could improve external reserves and positively impact the overall balance of payments.
However, with inflation on the rise again, analysts suggest that the MPC is likely to retain its hawkish stance. Analysts at Afrinvest point out the challenges faced by the committee, including recent inflationary signals from major external economies, rising domestic price levels, a weak Purchasing Managers’ Index (PMI), logistical challenges affecting Dangote’s supply of petroleum products, increasing fiscal deficits, and a continued expansion of money supply. In September, money supply (M3) rose by 1.6% month-on-month to N109.0 trillion.
The latest PMI data released by the CBN for October showed a decline in the composite PMI, which dropped to 49.6 from 50.5 in September, ending two consecutive months of business expansion. The weak PMI reading was driven by mixed outcomes across key sectors: the industrial sector PMI contracted to 49.3, the services sector PMI remained flat at 50.0, and the agricultural sector PMI expanded at a slower pace.
Afrinvest analysts further noted that the contraction in the industry PMI was fueled by declines in key metrics such as New Orders, Employment, and Stock of Raw Materials. Among the 17 subsectors surveyed, the food, beverage, and tobacco sector experienced the sharpest contraction, driven by weakening household purchasing power and rising production costs due to exchange rate volatility, as the Naira depreciated by 8% against the US Dollar in October.
With inflation at 33.88%, rising energy prices, fiscal pressures, and a growing national debt profile—hitting N134.3 trillion in the first half of the year (about 52% of GDP)—the MPC’s decision will likely consider these factors. Furthermore, analysts expect that a rate hike may be necessary to counter inflation and attract foreign investment by maintaining positive real interest rates.
Meristem Securities analysts suggest that both global and domestic factors will play a key role in shaping the MPC’s decision. Global developments, including the reversal of disinflationary trends in advanced economies, recent declines in oil prices, and their potential impact on the domestic economy, will be critical considerations. Domestically, rising inflation, increased fiscal spending, and the ongoing depreciation of the Naira will also weigh heavily on the committee’s decisions.
These factors are likely to lead the MPC to adopt a hawkish stance, with a focus on curbing inflationary pressures, stabilizing the Naira, and sustaining investor confidence in Nigeria’s fixed-income instruments. Meristem analysts predict that the MPC will raise the MPR by 50 basis points to 27.75% while leaving other indices unchanged.
