Nigeria’s MPR to peak at 23.75% as CBN may fail to deliver positive real short-term interest rate – EIU 

The Economist Intelligence Unit (EIU) has projected that Nigeria’s Monetary Policy Rate (MPR) is expected to reach a peak of 23.75% this year.

This represents a significant 200 basis point adjustment above its prior forecast. 

The adjustment comes after the Central Bank of Nigeria’s (CBN) monetary policy actions, which, according to the EIU, appear insufficient to maintain a positive real short-term interest rate amidst ongoing economic challenges. 

The report doubts the CBN’s ability to achieve a positive real short-term interest rate without incurring significant political costs, particularly regarding unemployment.

Despite the CBN’s inclination towards inflation targeting, the EIU suggests that such a move would likely conflict with government economic policies and suffer from a lack of credibility, given the CBN’s history of unconventional policy decisions. 

The analysis provided by the EIU further critiques the MPC’s prioritisation of economic growth over inflation control, hinting at the potential for political interference in policy decisions. Such dynamics raise concerns about the central bank’s strategy to effectively anchor inflation expectations within the country. 

The report read: 

The report also underscored the dilemma faced by the CBN, noting that despite an increase in the policy rate in February, the overarching economic goals set by President Bola Tinubu, including a notable aversion to high-interest rates and the ambition to double GDP by 2031, may hinder the necessary monetary tightening to attract foreign investors. 

This scenario is exacerbated by high inflation rates, eroding the real value of short-term interest rates and potentially leading to higher unemployment if aggressive monetary policies are adopted.