Nigeria's benchmark Monetary Policy Rate (MPR) has been predicted to rise by 200 basis points to 13.5 per cent in 2021, up from the 11.5 per cent it is presently.
Bloomberg Economics made the prediction in the media outfit's quarterly guide titled: "Ultra-Low Interest Rates Are Here to Stay: 2021 Central Bank Guide," obtained yesterday.
It pointed out that the Central Bank of Nigeria (CBN) has been under pressure to aid the recovery of the economy that's in recession, even after a 200 basis points cut of the MPR in 2020.
However, it stated that inflation at 34-month high and a currency that had to be devalued three times in 2020, "complicates the outlook for monetary policy."
"Nigeria's system of multiple exchange rates and curbs on dollar access have been key drivers of inflation and a drag on economic growth, with importers resorting to the more expensive parallel market to get hard currency.
"Central Bank Governor Godwin Emefiele and Finance Minister Zainab Ahmed have said they would seek a more flexible and unified naira. Still, there is no timeline for this yet and the IMF and World Bank said in December authorities should speed up these reforms to support the economy.
"Inflation will remain at double digits if the central bank doesn't reform monetary policy to focus on price stability, and easing is unlikely to give any additional boost to output, according to the IMF. Bloomberg Economics' forecast for end of 2021: 13.5 per cent."
Commenting on the outlook for Nigeria, Bloomberg Economics' Boingotlo Gasealahwe said: "Nigeria's inflation rate continues to surge, and has been stuck above the central bank target range for the past five years. However, the Central Bank of Nigeria has overlooked the recent uptick, choosing instead to support the economy with a 200 basis point interest rate cut.
"We expect it to hike rates again this year, when the recovery has gathered pace and the policy focus shifts back to inflation."
Globally, the report stated that central banks are set to spend 2021 maintaining their ultra-easy monetary policies even with the global economy expected to accelerate away from last year's coronavirus-inflicted recession.
Bloomberg's quarterly review of monetary policy that covers 90 per cent of the world economy predicted that no major western central bank would hike interest rates this year.
But, China, India, Russia and Mexico were among those predicted to cut their benchmarks even further. However, it stated that only Argentina and Nigeria were expected to raise rates.
The assumption was that central bankers would want to guarantee that recovery is safe before they even start to consider tightening policy.
It noted that continued uncertainty over the path of the virus along with elevated unemployment and weak inflation would be the main reasons for waiting, adding that even if inflation makes a comeback this year, central banks will likely try to look through it.
"In the Great Financial Crisis, central banks were the only show in town. In the Covid-19 recession, they are warm up acts for ministries of finance delivering massive fiscal stimulus and healthcare systems delivering the vaccine. Looking forward, the main challenge will be exiting extreme stimulus without disrupting financial stability," Tom Orlik of Bloomberg Economics stated.