Anticipating Nigeria's MPC rates’ decision

As Nigeria awaits the decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria, the focus is on whether the committee will hold rates steady or opt for a further increase. The last meeting in September saw a 150 basis point rate hike to 15.5%. With global central banks moving towards interest rate hikes, the MPC is under pressure to address the country's economic challenges. The CEO of CFG Advisory, Tilewa Adebajo, shared insights on the prevailing economic issues facing Nigeria. Adebajo highlighted the concerning trend of stagflation, characterized by high inflation rates and low economic growth. He pointed out the significant ways and means financing on the CBN's balance sheet, which is crowding out private sector credit. The imbalance in public and private sector financing poses a major obstacle to economic growth. The high level of government borrowing, coupled with limited capital expenditure, further exacerbates the fiscal challenges in Nigeria. Adebajo stressed the need for a clear strategy to address the ways and means financing and reduce the negative impact on the economy. The interview raised questions about the effectiveness of monetary policy in the current economic landscape. The recent flooding in several states, affecting food production, has added pressure on the economy, leading to higher inflation expectations. Adebajo predicted a gradual increase in food prices due to the impact of the floods. He emphasized the need for a comprehensive approach to monetary and fiscal policies to steer the economy towards stability and growth. Despite multiple rate hikes totaling 400 basis points this year, the effectiveness of monetary policy remains in question. Adebajo argued that the fiscal constraints imposed on monetary policy have limited its impact on the economy. The CEO highlighted the challenges of rising debt-to-revenue ratios and the need for urgent action to address the revenue base. The international market's perception of Nigerian debt has been affected by recent downgrades and increased risk perception. Adebajo emphasized the importance of restoring confidence in the international markets and restructuring debt to attract investors. He underscored the significance of fiscal reforms and restoring balance to public and private sector financing to drive economic recovery. As Nigeria grapples with economic challenges and limited policy options, the role of fiscal policy in shaping the country's economic trajectory becomes increasingly crucial. Adebajo's insights shed light on the complex interplay between monetary and fiscal policies in addressing Nigeria's economic challenges. The decision of the MPC following this meeting will be closely watched as stakeholders assess the path forward for Nigeria's economy.