Ahead of the first Monetary Policy Committee (MPC) meeting for the year, analysts and economists in the financial services sector see no change in the key monetary policy stance of the Central Bank of Nigeria (CBN).
The analysts expect the CBN to maintain the Monetary Policy Rate (MPR) at the current level of 13.5 percent at the end of the meeting on Friday, on grounds of inflation rate and wavy economy.
The MPC, which has the statutory duty to manage the central bank’s interest and exchange rate policies, is scheduled to announce its decision at the end of a two-day meeting on Thursday 23 and 24, 2020, according to a statement on the CBN’s website.
The meeting which held last in November 2019 was earlier scheduled for January 20 and 21 this year but was shifted by the apex bank without any disclosed reasons.
According to Ayorinde Akinloye, a research analyst at Lagos-based CSL, Nigeria cannot afford to ease rates as it could trickle into the OMO window which CBN currently uses to attract FX from foreign portfolio investors (FPIs) and could negatively affect exchange rate and reserves.
“Meanwhile, I don’t think growth would be spurred by easing rates now; there are structural issues we need to take care off,” Akinloye, said.
The Central Bank at the last meeting of 2019 retained the monetary policy rate (MPR) at 13.5 percent, asymmetric corridor at +200/-500 basis points around the MPR, cash reserve ratio (CRR) at 22.5 percent and the Liquidity Ratio at 30 percent.
The decision by the apex bank was influenced by the positive macroeconomic indicators such as the growth in the GDP in the third quarter to 2.28 percent, a decline in the non-performing loan to a further 6.56 percent at end-October, an increase in the capital adequacy of banks and an increase in absolute gross credit, amounting to N1.169 trillion recorded between end-May and end-October 2019.
Analysts at United Capital Plc do not think the MPC will do much when they meet this week.
They explained that the committee favoured the position of the apex bank to restrict local corporates and individuals from participation in the periodic OMO auction or trade OMO bills in the secondary market. Hence, their view is that the benchmark interest rate will be kept unchanged or reduced slightly.
“But the CBN will sustain its recent framework of heterodox policy mix until conditions necessitate policy normalization. Hence, interest rates in the fixed income market may remain low, especially in H1-2020,” the analysts projected.
Increasing the benchmark interest rate would help in controlling spiralling inflation driven by higher food prices from the yuletide season and the border closure.
The rate at which the prices of goods and services increased in Nigeria (inflation) soared to an 11-month high to 11.98 percent in December 2019. This is the fourth-straight month since Nigeria shut its land borders, raising concerns on the state of local production to plug supply gaps.
“In this meeting, we do not see compelling reasons to move the rate up or down but would not be surprised by a sight movement up, down, or just staying the same,” Andrew S. Nevin, Chief Economist at PwC said.
Nevin does not believe that Nigeria’s economic challenges will be solved by tweaking the MPC Rate. “To give an analogy, if the economy is a car, the CBN is the driver. But if we are driving a 1920 car, it does not matter if Lewis Hamilton is at the wheel,” Nevin said.
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