FUEL PRICE HIKES CREATE POLICY DILEMMA FOR CENTRAL BANK'S MPC AMID INFLATION CONCERNS
The Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) faces a challenging decision as the recent hikes in petrol prices complicate potential monetary policy adjustments. Analysts had expected the MPC to consider cutting interest rates, especially with Nigeria's inflation rate showing a slight reduction for two consecutive months. However, rising fuel costs have introduced a new layer of complexity.
In August 2024, inflation slowed to 32.15%, down from 33.40% in July, according to the National Bureau of Statistics (NBS). This decline initially sparked hopes that the MPC might reduce interest rates to stimulate economic activity. Yet, the petrol price hikes by the Nigerian National Petroleum Company (NNPC) have posed a new risk to inflation.
Petrol Price Hikes:
On Monday, NNPC raised petrol prices by 11%, marking the second increase in just two weeks.
In Lagos, prices rose to ₦950 per liter, while in northeastern states, prices surged to ₦1,019 per liter.
The hike follows NNPC's decision to source fuel from the Dangote Refinery at ₦898 per liter, a price disputed by the refinery itself.
Economic Impact:
Since July 2024, the price of petrol has skyrocketed from ₦617 per liter to between ₦950 and ₦1,019, reflecting a significant increase of over 50%. This drastic rise in fuel costs has raised concerns that inflation, which had been showing signs of easing, could accelerate again.
Analysts’ Views:
Analysts are divided over the best course of action for the MPC:
Tilewa Adebajo, CEO of The CFG Advisory, believes a rate cut is unlikely due to the direct inflationary impact of rising fuel prices.
Ayodele Akinwunmi, Senior Relationship Manager at FSDH Merchant Bank, pointed out that while inflation has declined, it remains high at 32.15%. He anticipates inflation could reverse its trend due to the petrol price hikes.
Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto Consulting, suggests holding rates steady as the fuel price hike is likely to intensify inflationary pressures.
Future Projections:
The MPC is scheduled to meet from September 23-24, 2024, where it is expected to make a critical decision on Nigeria's monetary policy stance. Some analysts, including those from Coronation Merchant Bank Limited, predict that the MPC will likely maintain the benchmark policy rate at 26.75% to assess the impact of previous rate hikes. However, others, like market analyst Ike Ibeabuchi, suggest the MPC may opt for a slight rate increase to prepare for the expected inflationary pressures from the fuel hikes.
At its previous meeting in July 2024, the MPC raised the policy rate by 50 basis points, bringing it to 26.75%. As the economic landscape remains uncertain, all eyes are on the upcoming MPC meeting to determine how the committee will navigate this dilemma.
The Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) faces a challenging decision as the recent hikes in petrol prices complicate potential monetary policy adjustments. Analysts had expected the MPC to consider cutting interest rates, especially with Nigeria's inflation rate showing a slight reduction for two consecutive months. However, rising fuel costs have introduced a new layer of complexity.
In August 2024, inflation slowed to 32.15%, down from 33.40% in July, according to the National Bureau of Statistics (NBS). This decline initially sparked hopes that the MPC might reduce interest rates to stimulate economic activity. Yet, the petrol price hikes by the Nigerian National Petroleum Company (NNPC) have posed a new risk to inflation.
Petrol Price Hikes:
On Monday, NNPC raised petrol prices by 11%, marking the second increase in just two weeks.
In Lagos, prices rose to ₦950 per liter, while in northeastern states, prices surged to ₦1,019 per liter.
The hike follows NNPC's decision to source fuel from the Dangote Refinery at ₦898 per liter, a price disputed by the refinery itself.
Economic Impact:
Since July 2024, the price of petrol has skyrocketed from ₦617 per liter to between ₦950 and ₦1,019, reflecting a significant increase of over 50%. This drastic rise in fuel costs has raised concerns that inflation, which had been showing signs of easing, could accelerate again.
Analysts’ Views:
Analysts are divided over the best course of action for the MPC:
Tilewa Adebajo, CEO of The CFG Advisory, believes a rate cut is unlikely due to the direct inflationary impact of rising fuel prices.
Ayodele Akinwunmi, Senior Relationship Manager at FSDH Merchant Bank, pointed out that while inflation has declined, it remains high at 32.15%. He anticipates inflation could reverse its trend due to the petrol price hikes.
Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto Consulting, suggests holding rates steady as the fuel price hike is likely to intensify inflationary pressures.
Future Projections:
The MPC is scheduled to meet from September 23-24, 2024, where it is expected to make a critical decision on Nigeria's monetary policy stance. Some analysts, including those from Coronation Merchant Bank Limited, predict that the MPC will likely maintain the benchmark policy rate at 26.75% to assess the impact of previous rate hikes. However, others, like market analyst Ike Ibeabuchi, suggest the MPC may opt for a slight rate increase to prepare for the expected inflationary pressures from the fuel hikes.
At its previous meeting in July 2024, the MPC raised the policy rate by 50 basis points, bringing it to 26.75%. As the economic landscape remains uncertain, all eyes are on the upcoming MPC meeting to determine how the committee will navigate this dilemma.