The two-day Monetary Policy Committee (MPC) meeting chaired by Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), will commence today with majority of analysts expecting a hold in the Monetary Policy Rate (MPR).
The meeting is coming about three days ahead of the Fed Reserve Chairman Jerome Powell’s plans to set the interest rates next week.
Analysts polled by BusinessDay are of the view that if current macro-economic conditions are good indicators to forecast from, the apex bank will apply a wait-and-see approach and hold rates at current levels of 13.5 percent to have a sure glimpse of the effect of the upward review of custom duty charges on the prices of goods and services.
Ten out of 12 investment and financial firms surveyed by BusinessDay voted for a hold in interest rate, while two believe the committee would cut rates by at least 50 basis points.
“The MPC will maintain the current status quo of 13.5 percent benchmark rate and a cash reserve ratio of 22.5 percent,” said analysts at Financial Derivatives Company (FDC) in a note.
“The decision would be premised on rising inflation rate which is above the CBN’s single digit, lower crude oil prices, slow economic growth and the increase in import duty charge,” said the analysts at the Bismarck Rewane-led FDC.
Since the financial regulator cut by 50 basis points the benchmark interest rate from 14 percent, a record it held for over three years, inflation figure has seen an upward trend and only in the month of June did headline inflation buck the trend, slowing its lowest level in 11 months from 11.40 percent in May to 11.22 percent in June.
“We think the CBN will reduce rates by 50 basis points, given that inflation has slowed further, and exchange rate has remained stable,” said analysts at investment and merchant banking firm, FSDH.
The FSDH analysts were of the view that since the CBN has embarked on an aggressive policy to stimulate lending to boost economic growth, it was rational to reduce the monetary policy rate to help drive this strategic goal.
The CBN at the last meeting in May retained all benchmark lending parameters, including the MPR at 13.5 percent, Cash Reserve Ratio (CRR) at 22.5 percent, Liquidity Ratio at 30 percent, as well asymmetric corridor of +200/-500 basis point around the MPR.
At the last meeting, the CBN said it would roll out policies that would help in boosting lending to the real sector. The apex bank followed with a five-year roadmap aimed at achieving a single-digit inflation and a double-digit growth rate; boosting financial inclusion by on-boarding 95 percent of the population by 2024; reducing high cost of obtaining mortgage loans; boosting external reserves from current level of $45 billion, and recapitalisation of banks to bring down non-performing loans (NPL) to 9 percent by year-end 2019.
In a bid to drive this roadmap, the CBN on July 5 sent a clear message to banks outlining two options: either they lend at least 60 percent of their deposits or pack more money as cash reserves with CBN and earn nothing.
Since the announcement, the average share prices of Nigeria’s lenders have taken a beating with the banking index down 7.4 percent at close of trading, Friday.
The apex bank also reduced by 73 percent, from N7.5 billion to N2 billion, the amount deposit money banks can place as standing deposit facility with the CBN to yield overnight interest. There are also indications that the CBN might cap the amount that banks can invest in securities, BusinessDay has learnt.
Below are the views of other analysts surveyed by BusinessDay on the direction the MPC is expected to go.
CSL Stockbroking Securities (Hold)
Analysts at CSL Stockbroking believes that the MPC would be cautious not to send a signal to the market that they are in a rate-cutting phase which might put pressure on the exchange rate by making foreign portfolio investors take out funds from money market instruments. Hence, they see the CBN adopting a wait-and-see approach while assessing the impact of those policies they have already implemented.
Afrinvest (Hold)
Analysts at Lagos-based Afrinvest say the MPC would hold rates while the CBN continues with other policies that will spur lending. Furthermore, they expect the MPC to focus more on assessing the impact of some of the new policies that have been introduced.
Cardinal Stone (Hold)
Although global and domestic developments currently provide support for greater tilt towards easing, the MPC is likely to leave its policy parameters unchanged to observe the impact of the previous MPR cut and adjustments to SDF and DMBs’ LDR guidelines on the real sector before deciding on a next step, according to analysts at research firm Cardinal Stone.
The research firm believes that the recent adjustments to SDF and LDR guidelines are unlikely to drive significant credit allocation to the real sector in isolation. However, the analysts think the MPC may prefer to support both initiatives through targeted interventions in key sectors such agriculture in the coming months.
PricewaterhouseCoopers (Hold)
“We expect that the rate will be unchanged seeing that the rate of inflation slowed to 11.2 percent, lowest in 11 months.”
Chapel Hill Denhem (Hold)
“The MPC will hold rates. However, we expect them to effect a monetary policy tool to compliment the administrative tool that was implemented. As such, they will move the asymmetry corridor from +200/ -500 t0 +200/-600 so that what the CBN will be giving deposits money banks (DMBs) when they deposit money with them will be 7.5 percent lower than the 8.5 percent that it currently is.”
Cowry Asset Ltd (Cut)
“There is a strong possibility that they will reduce rates since they have focused on driving lending. Also, the slow increase in inflation gives the CBN a clear backing to reduce rates.”
MICHAEL ANI
