An economic report by the research team of Cordros Capital Limited expects the Monetary Policy Committee (MPC), which will hold a crucial meeting next week, to be “reactive” to the global trend and raise the policy rate.
The Monetary Policy Rate (MPR) has been held at 11.5 per cent along other liquidity parameters since September 2020, when it was reduced by 100 basis points (bps) to increase access to funds as part of the measures to contain the effects on COVID-19 on businesses.
At the March meeting, four out of 10 members voted for an upward review, showing the gradual return of the hawks. Other analysts described the voting pattern as showing the rate-fixing body is gradually moving away from the sideline.
Central banks across the globe started nomalising their monetary frameworks in the last quarter of last year as inflationary pressure proved it was not transitory as initially thought.
The Federal Reserve System has increased interest rates twice this year while the second adjustment was by 50 basis points, the first time it would happen in over two decades. Central banks in Europe, Asia and Africa have long joined the fray.
The Guardian reported recently that the MPC faced hard choices, as it battles the pressure of jumping on the bandwagon.
Cordros, in its report released yesterday, says a lot has changed in the global economy and that the recent events suggest the MPC will activate a “reactive function.”
“On the global scene, sustained inflationary pressures have prompted global central banks to march on with their hiking cycles. At the same time, the unabating war between Russia and Ukraine, combined with renewed lockdowns in China, have created cracks in the health of the global economy.
It reports: “On the domestic front, the sharp increase in headline inflation to 16.82 per cent year-on-year (Y/Y) in April – the highest since August 2021 will be a cause for concern to committee members, particularly, as the trend will continue in the coming months due to the pass-through impact of elevated global energy prices.”
Hence, it envisages that the members will “take the pedal off the throttle in supporting economic recovery and switch to a hawkish monetary policy stance to anchor inflation expectations” to stabilise the external sector.
It, however, views that the committee could consider the implications of a rate hike on the domestic interest rate environment and be tempted to push back a rate hike until the July meeting.
“All in, we think the committee would retain the MPR at 11.5 per cent alongside other monetary policy parameters. However, we do not rule out the possibility of a 50bps hike in the MPR given the hawkish rendition among global central banks and the indirect impact of the Russia/Ukraine crisis on domestic inflationary pressures,” it concludes.
SOurce: Guardian.ng
