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00:00 Nigeria's Monetary Policy Committee has commenced its second meeting of the year with analysts
00:04 anticipating a tight monetary policy stance following February's 400 basis point hike
00:10 due to inflation risks.
00:11 Now, how is the market bracing up for another rate hike?
00:15 Tajudin Ibrahim, Director for Research and Strategy at Chapel Hill Denim joins me for
00:20 this discussion.
00:21 Tajudin, thank you for joining us today.
00:26 Let's get right to it.
00:29 First views on the outcome of this week's meeting.
00:33 Meeting started today, we're expecting an outcome tomorrow.
00:35 Our views are mixed in terms of what the outcome would be.
00:39 Some have the opinion that because inflation is a lagging indicator, the MPC may just decide
00:45 to hold rate and focus instead on assessing the impact of the last rate hike on the FX
00:51 market.
00:52 We have seen some developments within NARA.
00:54 We've seen an improvement.
00:55 We've seen FX inflows through the treasury bills, auctions, etc.
00:59 They just might focus on that and just perhaps give themselves a pat on the back.
01:04 While others say that look, with the latest inflation numbers we've seen, that may have
01:08 increased the urgency to increase rates to tame inflation.
01:12 What is your take?
01:13 Tajudin Ibrahim, Director for Research and Strategy at Chapel Hill Denim
01:14 Well, I think the major thing to do is to ensure that they are able to take in inflation.
01:21 What they have done at the last meeting of 400 basis points increase is consistent with
01:27 what we expect in terms of trying to curb the rising inflation, particularly from the
01:36 money supply standpoint.
01:39 But we also have to bear in mind that we still have inflation at 31.7 percent.
01:46 And if we put that beside the monetary policy, which is 22.75 percent, we will notice that
01:58 we still have a negative real interest rate environment.
02:04 So there is still need for them to rein in inflation and brought to the optimal level
02:13 in terms of how it could impact demand-pushed inflation.
02:19 So I think there is still more to do in terms of tightening monetary policy, particularly
02:24 to rein in inflation.
02:25 But do you think that they will do that at this second meeting under the new CBN governor?
02:31 At 31 percent, obviously there's a lot of catching up to do.
02:34 But the question is how high, how much can the MPC deliver at a single meeting?
02:39 Last time we saw 400 basis points, totally unexpected.
02:42 But it looks like we're probably already used to that now.
02:45 So perhaps another big jump may not come as a surprise to the markets.
02:49 What's your money on?
02:50 So in-house, our view is that there is need for up to 200 basis points increase.
02:59 So we're bringing in 100 to 200 basis points.
03:04 We will consider a 100 basis points increase at this current meeting, a moderate level.
03:10 And we will consider a 200 basis points increase in an aggressive one.
03:16 And the calculation even looks like 200 basis points is more suitable in this case if they
03:23 want to maintain the real negative spread, which is around 715 basis points.
03:31 So if they want to maintain that, what looks suitable is a 200 basis points increase.
03:38 Because inflation, as we speak, has not peaked yet.
03:44 We still have a case where inflation most likely in the month of March, which we currently
03:49 are, rising to about 32 percent level.
03:54 So what that implies is that we should not allow too much of a negative real interest
04:00 rate environment if we really want to attract more investment into the financial system,
04:08 particularly foreign investors.
04:09 And even the local investors are not left behind in this regard.
04:14 I mean, there's also that lagging effect.
04:16 I mean, some may argue that shouldn't we, you know, get to have some time to see a month
04:22 or two, I don't know how many months or how long, you know, for that, for us to begin
04:26 to see the impact of the policy?
04:28 I think that's going to be dangerous because if we wait too much, you know, all the gains
04:39 that we have seen so far, particularly the gains that we have seen on the foreign currency
04:44 front and also the gain that we have seen in terms of the, you know, better control
04:50 of narrow liquidity in the financial system, all those gains may be eroded if the CBN sits
04:57 back and does not do anything as the current meeting.
05:02 We recognize that, you know, there were some of the members were calling for much higher
05:07 increase in the policy rates at the last meeting.
05:10 So that is already an indication that, you know, there is still further headroom for
05:15 them to increase, you know, the policy rates further.
05:18 And the broad expectation in the market is that, you know, financial, I mean, the monetary
05:24 policy stance still has to be more hawkish than we currently have it.
05:29 And that, to my mind, calls for further, you know, rate increase.
05:35 The size is what I think, you know, may be debatable.
05:40 But I reckon that 200 basis points look more like it.
05:44 I mean, you're absolutely right about, I mean, being quite hawkish.
05:48 I remember one member did vote for 450 basis points at the last meeting.
05:53 Let's talk about, I mean, the fiscal, there is obviously a fiscal side to this, which
05:57 we many times when we have conversations with our analysts, economists, okay, well, I've
06:03 been told I have just one minute left.
06:04 I mean, there's a fiscal side, there's a structural side to inflation that we talk so much about.
06:09 Well, what have you seen in terms of movements on that side?
06:12 I mean, insecurity within the food producing parts of the country, et cetera.
06:22 Honestly speaking, that is the only major area of concern as we speak.
06:26 I think with respect to monetary policy, the current leadership of the CBN has demonstrated
06:33 that, you know, they really are in charge.
06:36 And you know, all the policies put in place are currently yielding the desired results,
06:41 particularly on the foreign currency market front.
06:45 But when we take a look at the fiscal side, just like you said, we really haven't seen
06:50 much.
06:51 So, insecurity is still a major source of concern.
06:54 And I think, you know, up until when we begin to address those concerns and ensure that
07:02 there is an improvement in security, we will most likely still be, you know, be worried
07:10 about food inflation.
07:12 But as we speak, demand for the inflation is being taken care of via monetary policy.
07:17 The fiscal authority has to do their own part in terms of ensuring an improvement in security.
07:24 Right.
07:25 Tajudin, we're going to have to leave it there.
07:26 But thank you so much for sharing that insight.
07:27 And of course, we're keeping our fingers crossed for the outcome of the MPC meeting tomorrow.
07:31 Tajudin Ibrahim, Director for Research and Strategy at Chapel Hill Denim.