Nigeria has been projected to maintain its current monetary policy rate of 14 percent at the end of 2019, according to Bloomberg economists, as major central banks remain skittish of global trends.
In an analysis conducted by Bloomberg, based on the median estimates of the latest monthly or quarterly survey and recently collected forecasts, only 10 out of 24 central banks covered have been estimated to raise their policy rates in 2019 as most of the G7 countries, including the United States, have been tipped to tighten policy stance.
“That outlook marks a change from last year where a majority of central banks raised rates and the European Central Bank ceased buying assets. Of course, if economies weather the latest challenges, policymakers may need to rethink anew,” Bloomberg Reporters said, as heightened uncertainty about the trajectory for policy normalisation and reduced divergence between the Fed and the other central banks were identified factors steering the 2019 central bank outlook.
The report further showed a mixed result across the Frontier and Emerging markets with the likes of Brazil, South Africa and Indonesia to favour a contractionary policy while Russia and Mexico would be inclined towards loosening policy stance as Nigeria, India and China have been estimated to leave the rates at existing levels.
Rafiq Raji, chief economist at Macroafricaintel, agrees with the projection for Nigeria by Bloomberg economists, explaining that there is no significant benefit for Nigeria in hiking the rates in tandem with the Federal Reserve which has assured the markets of its cautious approach concerning US policy rates.
“Carry-trade would still be attractive. Still high but moderating inflation expectations support keeping rates unchanged,” Raji said.
“For hot-money types, it matters more to them that they are able to move their funds freely but they would proceed cautiously ahead of the upcoming elections. So, I wouldn’t be surprised if there are above-trends outflows in January,” he said.
However, Johnson Chukwu, CEO of Cowry Asset Management, explained that if the trajectory of the determining variables remained unclear, the current estimates cannot be absolutely relied on.
“For me, it would be too presumptuous at this stage to say they will keep the rate or it would move in any direction. A lot would depend on how the economy works, the inflationary pressure and whether the economy is growing well,” Chukwu said.
The Central Bank of Nigeria (CBN) has maintained a tight policy stance since July 2016 when it moved the rate to 14 percent, the highest so far in the country’s history. However, fears of increased inflationary pressure stoked by election spending, the proposed increase in the minimum wage as well as the likely deregulation of fuel prices, have concerned analysts as they estimate that the inflationary pressure would start building up towards the end of Q1 2019.
Overall, even though analysts believe the rates would be maintained for Q1, many are not sure about the Monetary Policy Committee’s move in the subsequent meetings in the year as the country would likely have a new central bank governor after Godwin Emefiele’s first term ends later in the year.
“The naira’s peg to the US dollar is likely to return as the main priority of the Central Bank of Nigeria in 2019 as oil revenue and foreign investment dip,” said Mark Bohlund, a senior economist at Bloomberg.
“A hike in the policy rate is possible in 2019 but the CBN may opt for other ways to maintain the peg, such as open market operations. We do not expect Godwin Emefiele to continue after his current term as CBN governor ends in June,” Bohlund said.
SEGUN ADAMS
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