Central Bank of Nigeria (CBN) watchers say they expect the Monetary Policy Committee (MPC) to call a retention of the Monetary Policy Rates at 12 percent, despite fears of external influence on the committee’s decision after the CBN’s governors spat with the presidency last week.
The next committee meeting comes up next week, will be the first in the year and follows heated debate on the future of CBN governor Sanusi Lamido Sanusi.
The CBN has held on to a tight monetary policy stance since 2011 and many believe that is unlikely to change soon. Some analysts feared the recent controversy may colour deliberations at the meeting next week, to the extent that members may not be at their best.
“We expect no change to the policy rate,” say analysts at the Renaissance Capital.
Razia Khan, analyst with Standard Chartered Bank, said, “We do not expect reports of an allegedly acrimonious relationship between the President and the CBN Governor to have much impact on the monetary policy decision. Monetary policy is set by a committee in a transparent way, with a view to achieving price stability. The key consideration therefore will be whether there are any adverse influences that threaten price stability.
The FX rate will of course be closely watched, to the extent that offshore investors may be unsettled by news reports hinting at an earlier departure of the CBN Governor. Should measures to remedy any FX instability be required, we believe that the MPC will not hesitate to act.”
Commenting further, Khan said “For the year as a whole, we believe that a further hike in the public sector CRR, rather than a policy rate hike may be the preferred means of keeping the FX rate steady, especially if we see more pressures related to government spending which are not yet in evidence.
“In view of the tension, I think Sanusi will not like to do anything that will generate any controversy, although the policy has not fared well in forex management,” an analyst said last night.
Also, the successful absorbtion of the over N1 trillion worth of Asset Management Company of Nigeria (AMCON) bonds by the economy recently redeemed and the determination of Sanusi to continue to defend the naira, among others, suggest that the Committee will maintain the over two years tight monetary policy stance or even go tighter.
“The monetary policy environment has become more politically charged, with the impending exit of the CBN governor. Based on normal assumptions, we expect that the monetary stance will remain unchanged or even go tighter. The AMCON bonds that have just been redeemed, and the need to support the naira suggest that the CBN will be more hawkish. However, in view of the political tension and the lame-duck effect of the outgoing governor, we expect the status quo to be maintained,” says Bismark Rewane, chief executive, Financial Derivatives Company said.
Daily morning Note from the FBN Capital researchers yesterday said, “Sanusi is likely to prove a difficult act to follow. However, the new CBN governor will have to confront the same issues that his predecessor has had to grapple with in the last few years – Nigeria’s import dependency, inadequate revenue diversification and fiscal slippage. Electioneering in 2014/15 will add to these challenges in the new governor’s first year in office.
Rewane further said that in the event that there was further contraction by increasing the CRR for public deposits to 75%, the impact will not be as profound as earlier tightening cycles, due to the current excess liquidity in the system, adding “Interest rates in January have averaged 10.71%p.a. and will remain tentative till the MPC meeting.”
He observed that further tightening would however halt the stocks rally of 2013 of 47.19%, but at a more subdued level. “Any tightening in policy stance will bring this rally to a halt and could trigger a correction,” adding,”However, if rates remain unchanged, and there is further loosening, the current bubble may continue bloating.”
The dwindling external reserves currently at $43.29bn, he further observed, are putting speculative pressure on the naira, stressing that the development is likely to tilt the sentiment of the committee towards further tightening. The chief executive said that there is a lot of uncertainty in respect of the future value of the naira, noting that if inflationary pressure eases, the fears may ease along.
By: John Omachonu