Smarting from the stability in the exchange rate and rising foreign exchange reserves, the Central Bank of Nigeria (CBN) on Tuesday left the Monetary Policy Rate unchanged at 12 percent+/- 200 basis points, noting that relaxing rates at this point has the potential of inflation risk to the economy.
Justifying the stance, analysts said the unsustainable single digit inflation and the ambitious $79/pbd oil bench mark price in the 2013 budget, among others, are enough reasons for the retention of a tight monetary policy stance by the CBN.
They reasoned that the attainment of the single digit inflation was not sustainable, since it was achieved on the back of the high base effect due to the increase in the pump price of fuel in 2012.
However, the CBN’s position seemingly came as a disappointment to some analysts who had looked forward to the commencement of an easing trend in order to stimulate the economy, which they feel has been denied of credit since October 2011.
Bismarck Rewane, chief executive officer, Financial Derivatives Company and Abdu Rahman Yinusa, executive director, Diamond Bank, expressed disappointment, saying that the rates should have been reduced, to allow credit to the economy.
Sanusi Lamido Sanusi, CBN governor, said yesterday that the Committee decided to leave the Monetary Policy Rate (MPR) anchor rate at which the CBN lends to banks, and the Cash Reserve Ratio (CRR) mandatory cash banks keep with CBN, at 12 percent respectively.
The Committee also held the banks’ foreign exchange net open position (NOP) percentage of banks foreign exchange holdings, steady at 1% and maintained the liquidity ratio at 30%. Nine MPC members out of 12 voted for the status quo.
Samir Gadio, emerging markets strategist, Standard Bank, London, said, “This outcome was widely anticipated, given the recent upward pressure on USD/NGN which reflects weaker capital flows into Nigeria in Q1:13 as market rates declined significantly over the past 12-m. “The CBN was forced to sell USD directly to the banks last Friday for the first time in a long period, to bring back the exchange rate from levels shy of 160 on Thursday.
“As such, the perception may be that the monetary policy stance is still tight, but this has clearly been less the case lately,” he said.
Razia Khan, analyst with Standard Chartered Bank London, said that Nigeria needs more re-aasurance from the CBN on the sustainability of the single digit inflation.
Johnson Chukwu, managing director and chief executive, Cowry Asset Management limited said “A reduction in MPR would also discourage foreign portfolio investors whose interest in Nigerian fixed income instruments have been waning, as yields decline.”
For Jimi Ogbobine, research analyst, Consolidated Discount Limited, said “The slow-down in capital inflows from Foreign Portfolio Investors (FPIs) in the first quarter of the year also implies that the Central Bank will once again become the major source of dollar injection in the financial system.
For Rewane, “this outcome is very disappointing for the market, especially amid the strong expectations of a rate cut. Fifty-five percent of our trades are in Japanese yen, Euro and the pound sterling, so let us take one after the other. Lowering rates would do a lot to increase appetite, but as it is now, the opposite would be the outcome, I however hope that by the next MPC, some more positive results would be the outcome.
Yinusa, said further, “ the implication is a bit disappointing for the market, which had strong expectations of a rate cut. It is not good enough to retain the MPR at 12 percent because of fear of the signal you might send, it doesn’t sit well with me at all. For me, what is key is to have a positive management of the rates by cutting it, so when you minus the inflation effect, you get the stability you desire.”
JOHN OMACHONU, BIODUN COKER & ONYINYE NWACHUKWU