CBN Could Implement 100 Basis Points Policy Rate Hike, Firm Says
Discussion on interest rate direction in the fiscal year 2022 continues to garner momentum with differing positions and explanations among learned experts in the finance industry.
Though, major discussions around policy rate direction have been anchored on Nigeria’s economic recovery and growth and the risk that upward rates adjustment would pull back the growth trajectory.
However, there is an external risk to local policy following the United States Federal Reserve fast, and of course, very furious hawkish poise appears to have become a threat to frontier and emerging markets.
In the United States, 10-year Treasury notes yield has maintained an uptrend, near 1.80% while the 30-year note was priced at 2.10%.
Money, they say goes to where it is treated well. Interest rate hike in the United States amidst bond-buying slowdown would make developing economies less attractive, NAIRALAW.COM gathered.
The question that is still begging for an answer is whether Nigeria’s Central Bank (CBN) would adjust the benchmark interest rate upward. Some Broadstreet analysts think interest rate would likely stay as it is to ensure Central Bank continues to deploy the monetary policy to drive fiscal authority expansionary spending.
In its outlook for 2022, CardinalStone said CBN may turn fully hawkish. “In our view, the MPC may implement a symbolic MPR increase of 50 to 100 basis points in 2022”. It said this view is supported by projected sustenance in growth numbers and the normalisation of interest rates in advanced economies.
Importantly, rate increases in advanced economies may drive sell-offs in Nigerian Open Market Operations (OMOs) and intensify FX pressures as foreigners seek to cut down on Naira risks as pre-election worries heighten, according to CardinalStone.
To curtail the FX impact of such a risk-off sentiment, the firm said the apex bank may adjust OMO rates higher to appease foreign investors — a move that may inadvertently drive sell-offs in the domestic fixed income space as banks attempt to rotate into OMOs.
In addition, the CBN is likely to continue deploying ad-hoc measures -given weak monetary policy transmission- in its fight to defend the Naira and support economic growth, even though the emphasis on the latter may wane as growth numbers remain stable.
However, the cumulative impact of previous deficits and concerns over FX management policies saw currency remain a topical investment issue in 2021, according to the report.
The investment firm said CBN’s FX rationing and inflows from SDR & Eurobond prevented a material external reserve haemorrhage. #CBN Could Implement 100 Basis Points Policy Rate Hike, Firm Says
Read: Yields Direction in Fixed Income Market Unclear -WSTC
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