Analysts say markets discount MPR as nominal anchor

Analysts at Financial Derivatives Company Limited said that various markets have already discounted the Monetary Policy Rate (MPR) as a nominal anchor, rendering it as an impotent benchmark.

The monetary policy committee of the Central Bank of Nigeria (CBN) voted 9-3 to retain the status quo at its latest meeting amidst a highly speculative operating market environment. The decision to leave the stance and rates unchanged was considered to be a defensive rather than a strategic move. MPR was unchanged at 12percent with an asymmetric corridor of +/- 200basis points (bps). Cash Reserve Ratio (CRR) was also unchanged at 12 percent of total assets; liquidity ratio, at 30 percent of total assets; and net open position at 1 percent.

According to Financial Derivatives Company analysts in their report titled ‘FDC Economic Flash’: “The T/Bill auction rates have declined down to 9.2percent per annum. The Bond yields have gone the same way. This disconnection between the market and the benchmark is partly because of the impact of T/Bill maturities and the huge FACC disbursement of N888billion and N400billion capital votes.”

“We expect the market to continue the trend of interest rates declining slowly until the next meeting in May. The Naira will remain relatively stable. It had appreciated against most currencies of Nigeria’s trading partners even though weakening marginally against the U.S. dollar,” they added.

“Nigeria has therefore joined South Africa and Ghana in leaving the benchmark interest rates unchanged in the last month. The MPC considered many factors before arriving at a decision. These include but are not limited to: threats to fiscal consolidation; inflation; money supply growth; declining real GDP growth rate; a depreciating currency; decline in foreign capital inflows; a weakening currency; and threats of an asset bubble in the stock market,” the analysts noted.