With the country being out of its five straight quarterly contraction and falling inflation rates, the monetary policy committee (MPC) of the central bank is scheduled to have its last meeting of the month on 20th and 21st of November 2016, and there are high expectations on the outcome.
The MPC had on September 2017 held on to the 14% interest rate to observe various economic indicators – including growth, budget implementation to curb inflation, make naira attractive, increase foreign direct investment(FDI), and also help our bleeding external reserves. The last time the interest rate was changed was in July 2016 when the CBN monetary rate was moved from 13percent to 14percent.
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At a communiqué issued after the MPC meeting in September, “the Committee believes that the effects of fiscal policy actions towards stimulating the economy have begun to manifest as evident in the exit of the economy from the fifteen-month recession. Although still fragile, the fragility of the growth makes it imperative to allow more time to make appropriate complementary policy decisions to strengthen the recovery”.
DolapoAsiru CEO CLG Securities Limited while reacting to the forthcoming MPC meeting, “He foresees a do-nothing MPC next week Monday, although he admitted that all indication shows the interest rate will come down but not this year. He foresees the rate coming down from Q1, 2018”.
With FOREX now relatively stable, Inflation rates decreasing to 15.98percent, and External reserves at $33.69b and increase in dollar stability. Analysts are expecting a looser policy from the MPC scheduled to meet next week Monday. According to Moscow based investment firm Renaissance Capital, “MPC believes we will have more clarity on growth and inflation by first quarter 2018. We think the committee may start cutting the policy rate at the March 2018 meeting, by 1 ppt. Additional arguments in favour of looser policy are: inflation is not demand-driven; we see non-food inflation slowing to 10-11% in first-quarter 2018″
Ayo Akinwummi says “they will likely reduce MPR due to stability in the economy and the positives coming from foreign exchange. On the implications of the reduction of MPR, “the yield in the market will go down and source of funds may likely go down and with improvement on the economy credit accessibility will also increase”. Akinwummi added
On the reason for the MPC rate still at 14% as at September 2017 The CBN Governor Mr Godwin, Emefiele addressing newsmen at the last MPC meeting said “we are Conscious of the prevailing market sentiments in favour of a rate cut; the committee reasoned that most of its decisions in 2016 were informed by the need to address the delicate balance between price stability and growth. Noting that the pressures on consumer prices were yet to abate and even as the economy continued to be in recession despite the intervention support by the CBN, the committee stressed that it was not oblivious of the full ramifications of the economic challenges facing the country,“
On the implication of the interest rate remaining at 14percent, Mr DolapoAsiru said:” Banks will gradually embrace the fact that the case of high-interest income is coming to a close; banks will start doing proper lending rather than placing money on Treasury bill.”
The MPC will also be reviewing the cash reserve ratio, liquidity ratio and asymmetric corridor. Majority of the key stakeholders in the economy will be monitoring the outcome of the meeting and be expecting the CBN to be more hawkish in its policies.
Oladehinde Oladipo
