Financial analysts are divergent in their expectations as the Monetary Policy Committee (MPC) will today (Tuesday) announce its decision on benchmark interest rate at its 272nd meeting in Abuja.
This comes as the foreign exchange pressure resumed on Monday. The dollar sold at N400 on the black market after the Central Bank of Nigeria (CBN) adjusted the currency to N380/$ at the Investors and Exporters (I&E) forex window at the weekend.
Buying price for dollar on Monday was N390 across Lagos black markets, but selling price differed. For instance, dollar sold at N400 at Festac Town, while in Apapa area of Lagos, it sold at N397.
The CBN had last week issued a circular on weekly exchange rate disbursement of proceeds of International Money Transfer Services Operation (IMTSO) among dealers.
Exchange rate from IMTSOs to banks is put at N376 per dollar, from banks to CBN at N377/$, CBN to BDCs at N378/$, and BDCs to end users not more than N380 per dollar.
Some of the analysts polled by BusinessDay expect the CBN to maintain a status quo on the Monetary Policy Rate (MPR), while others anticipate a cut.
In the face of increasing inflation and declining oil price, the MPC might likely hold rate while encouraging the CBN to continue the use the instrumentality of intervention funds, Cash Reserve Ratio (CRR) and Loan to Deposit Ratio (LDR) in galvanising the economy, said Akintunde Olusegun, financial market analyst at Polaris Bank Limited.
The CBN last week cut interest rates on all its applicable intervention facilities from 9 percent to 5 percent per annum for one year effective March 1, 2020 and also granted a further moratorium of one year on all principal repayments.
In view of the success of the LDR policy in growing credit to the economy and reducing interest rates, the CBN said it would further support industry funding levels to maintain banks’ capacity to direct credit to individuals, households, and businesses.
Uche Uwaleke, professor of finance and capital markets, Nasarawa State University, does not see the MPC effecting any rate cut. On the other hand, he said a rate hike at this period would be at variance with the expansionary path that most central banks are toeing to minimise the impact of the coronavirus pandemic.
“So I expect the MPC to maintain status quo and hold all the policy parameters, especially in view of the fact that it increased the Cash Reserve Ratio from 22.5 percent to 27.5 percent only two months ago,” Uwaleke said.
From the CBN’s angle, he said tackling the negative effects of COVID-19 on the economy would require unconventional monetary policy. The apex bank has already risen to the challenge through the stimulus packages it rolled out including the reduction in interest rates for intervention programmes from 9 percent to 5 percent, and its commitment to sustain the LDR of 65 percent which has increased credit to the private sector. This is against the backdrop of rising inflation and the recent upward ‘adjustment’ in the exchange rate which has reduced the value of the naira, a development likely to exert more inflationary pressure.
Taiwo Oyedele, head of tax and corporate advisory services at PwC, expects the MPC to adopt measures that will stimulate the economy while keeping inflation under control to stem the upward trend.
“MPC’s actions need to be complemented with appropriate fiscal policy responses in a coordinated manner,” Oyedele said.
Nigeria’s inflation rate for the month of February 2020 increased to 12.20 percent from 12.13 recorded in January.
But some of the analysts expect the MPC to cut rate.
Ayo Teriba, CEO of Economic Associates, said at the theoretical level, the CBN should at least try to mitigate the advance effects of the coronavirus. But the MPC, he said, has not been able to do the ideal thing since 2016. The MPC would like to ease to avoid a recession but it would not be able to do so because of low reserves levels, he said.
“If we had adequate level of reserves to meet imports and the demand of capital flow in the short term, then ideally they should ease. But in the absence of reserve adequacy, easing will be dangerous. That is why it is important for them to look for ways to boost foreign reserves,” Teriba said.
Ibrahim Tajudeem, head of research, Chapel Hill Denham, said the country was in a critical moment.
“The CBN might likely respond to in line with global central banks, by accommodating or embracing a dovish monetary policy stand. And I also expect them to cut rate which is consistent with the measures they introduced last week to provide stimulus to the economy on the back of CONVID19 crisis,” he said.
Gbolahan Ologunro, a research analyst at Lagos-based CSL Stockbrokers, anticipates a 50 basis points cut in the MPR.
“I think a consideration for a rate cut is in line with their recent policy moves so as not to make the MPR as irrelevant as it has been over the past,” Ologunro said.
“Over the years the CBN has always been confronted with two choices which are to attract foreign inflows, ensure stability in the exchange rate market and trying to contain inflationary pressure. However, at this time, I think a reduction in rate would upstage that objective by the CBN,” he said.
Ayodeji Ebo, MD, Afrinvest Securities Limited, said CBN would try to align itself with global central banks.
“So we expect that there might be a cut, but we are expecting that there will not be any reaction to that cut because the MPR has been very ineffective. So we don’t see any transmission effect on the fixed income market. The CBN has been using other policies to guide rate and not necessarily the MPR,” Ebo said.
HOPE MOSES-ASHIKE & BUNMI BAILEY