Photograph — Bloomberg

The Central Bank of Nigeria (CBN) is set to convene its Monetary Policy Committee (MPC) meeting on the 26th and 27th of February. This marks a significant event as it is the first MPC meeting since Governor Olayemi Cardoso assumed leadership of the institution in September 2023. This meeting deviates from the traditional bi-monthly schedule consistently observed over the past few years.

Contrary to the customary practice of holding MPC meetings every two months, experts advocate for a more frequent occurrence of at least six meetings annually. Remarkably, since July 2023, there has been a break in the convening of these crucial meetings, raising concerns among financial analysts and market observers. 

However, speculations are circulating that the CBN might implement a substantial increase in interest rates, potentially reaching up to 500 basis points during the upcoming month. This anticipated move is expected to address concerns regarding foreign exchange management, which has been cited as a deterrent for investors, leading to a downturn in foreign investment inflows.

During the last MPC meeting in July 2023, the central bank opted for a conservative approach, raising interest rates by a modest 25 basis points to 18.75%. However, subsequent developments have unfolded, characterised by a surge in inflation and sustained pressure on the naira.

The forthcoming MPC meeting is anticipated to provide a platform for the CBN to reassess and potentially recalibrate its monetary policy stance. The speculated increase in interest rates by a substantial 500 basis points reflects a proactive measure to address the challenges posed by inflation and currency devaluation. Additionally, there is an expectation that the central bank will use this opportunity to offer greater clarity on its foreign exchange management strategies, aiming to instil confidence among investors and attract renewed interest in the Nigerian market.

“The reports of the Central Bank of Nigeria (CBN) considering a 500 basis points increase in lending rates remain speculative, yet there is a prevailing anticipation that the apex bank will adjust rates due to the current inflationary challenges faced by Nigeria,” shared an anonymous financial expert with Ventures Africa. “However, potential drawbacks to such a rate hike include the heightened difficulty for businesses to secure loans, potentially stifling the business environment and diminishing consumer spending.”

Central banks typically raise benchmark lending rates in an economy to counter inflationary pressures by increasing the cost of borrowing, thereby restraining spending and moderating economic activity. This strategy is also employed to stabilize the currency, attract foreign investment, and uphold overall economic stability. In the context of Nigeria’s economy, where major corporations are already divesting from their businesses due to challenging business conditions, an increase in borrowing rates is poised to exacerbate the situation, potentially intensifying the challenges faced by businesses.

As economic stakeholders observe the events that would unfold, the decisions that would be made during the upcoming MPC meeting are likely to exert significant influence on Nigeria’s economic landscape and its standing in the global investment sphere.

Elsewhere on Ventures

Triangle arrow