Nigeria's Central Bank: Experts divided on interest rate move amid inflation concerns

Economists in Nigeria hold differing views on the Monetary Policy Committee's (MPC) next move regarding the benchmark interest rate. The Central Bank of Nigeria (CBN) maintained the Monetary Policy Rate (MPR) at 26.5% during its May meeting, citing a recent rise in inflation and external economic pressures.

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The MPC recognises its transitory nature and remains confident that the current macroeconomic environment is sufficiently robust to support a return to disinflation.

This decision followed a reduction in February, when the rate was lowered from 27% to 26.5%. CBN Governor Olayemi Cardoso stated that the committee believes the current inflationary pressures are temporary and that the macroeconomic environment is strong enough to support a return to disinflation. However, data from the National Bureau of Statistics shows headline inflation climbed for the third straight month to 15.93% in May.

The increase in inflation is largely attributed to higher food prices, exacerbated by rising global oil prices. Tensions in the Middle East have disrupted oil shipping routes, contributing to increased transportation, food, and fertilizer costs. While a ceasefire was reached in June, renewed hostilities continue to create uncertainty in energy markets.

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Inflationary risks are still very much present, particularly with the ongoing geopolitical tensions in the global space, so that should reduce the likelihood of a cut.

Looking ahead to the MPC's July meeting, some economists anticipate the rate will remain unchanged due to persistent inflationary risks. Others suggest that easing inflation and improving macroeconomic conditions might allow for the beginning of a monetary easing cycle. Felicia Awolope, an economist at Meristem Securities Limited, expects the CBN to hold the rate, noting that global interest rates may stay elevated longer due to ongoing geopolitical tensions.

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The fact that global interest rates might also remain higher for longer due to this same pric