The Monetary Policy Committee (MPC) is scheduled to hold its fourth meeting of the year on the 24th and 25th of July 2023. Just as in previous meetings, we expect the Committee to appraise happenings in both the global and domestic environment in reaching its decision. The Committee is expected to consider declining inflation across major advanced economies, sustained hawkish tone of monetary authorities across the world, developments in the oil market and the financial sector crisis of H1:2023.
On the domestic scene, headline inflation has maintained its upward trajectory, significant fiscal policy reforms (like fuel subsidy removal and tax reforms) are ongoing, while existing legacy issues in the agricultural sector persist. The Committee is also expected to consider the impact of these aforementioned issues in its upcoming meeting.
Other factors likely to influence the Committee’s decision include: the cost-of-living crisis, collapse of FX windows at the Investor’s and Exporters Window and its implications for the country’s currency value against the greenback. As a side note, we expect the ongoing administrative changes at the Apex bank to have an impact on the MPC’s monetary policy decision.
While we maintain that a HOLD stance is not appropriate at this time, we also opine that the Committee’s decision would swing between a decision to hold and utilise other monetary policy tools, or to increase the MPR further. After carefully considering all the points above, our view is that the MPC will be more tilted towards a 50bps increase in the monetary policy rate (MPR) to 19.00%.
