Pre-MPC Note: Rate Hike Inevitable; A Question of When


Tuesday, January 25, 2022 / 9:30 AM / by United Capital Research / Header Image Credit: Artisteer; iStock

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The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will conclude its 1st scheduled meeting for the year today (25/01/2022). At the meetings, key considerations will include the increased global signalling from major central banks, persisting inflation estimates globally, supply-chain drawbacks, rising energy prices and seismic labour market shifts. 

At the MPC sessions, we expect the committee to focus on the increased hawkish monetary stance amongst major central banks and other emerging market central banks that have hiked rates since Q4-2021. The CBN's need to defend and attract already depressed FPI flows to support its dollar interventions will also support a HIKE decision. The CBN remains the primary supplier of dollars in its official exchange window. Rising inflationary pressures in the month of Dec-2021 will also encourage the CBN's decision to hike rates and reduce the expected capital flight. A HOLD will only be a temporary decision as a continuation with its "wait and see" stance since  2021, following increased GDP recovery in 2021, as it holds concerns about the threats of increased borrowing rates on Nigeria's fragile recovery. 

We expect the committee to hold rates until its March meeting, giving it more time to reflect on rate hikes in more developed markets and renewed inflationary pressures locally. However, a rate hike by 50bps-100bps would not surprise following recent inflation estimates and increased tightening stances abroad. 

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