The Central Bank of Nigeria, CBN, will today, Monday, September 19, kick off its 252nd Monetary Policy Committee. MPC, meeting.
To this end, investors in the economy would be anticipating favourable rate decisions made by the committee to spur investments as well as stimulate the country’s ailing economy.
The two-day meeting which would be the fifth to be held this year, holds in Abuja and members of the committee would determine whether or not to adjust upward or downward, the benchmark Monetary Policy Rate (MPR), which was raised to 14 per cent from 12 per cent, and the Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) which were both retained at 22.50 per cent and 30 per cent respectively.
Analysts at FSDH Merchant Bank Limited, anticipated that the MPC members would resolve to hold rates. They opined that the current economic recession does not support an increase in rates, adding that instead it supports rate cut to boost output.
“On the other hand, the rising inflation rate and weak currency do not support rate cut but a rate increase. However, given the stagflation the country faces at the moment, maintaining rates at the current level may be the best option.
“We expect the MPC to continue to use the open market operations (OMO) to influence yields to achieve positive real yields on fixed income securities. The weak global economic growth outlook portends a downward pressure on oil prices, which will mean additional pressure on the value of the naira. Thus, a tight monetary policy is an appropriate response to mitigate the negative impact on the Nigerian economy,” FSDH Merchant Bank analysts stated.
Also, Afrinvest West Africa Limited pointed out that with economic growth faltering, inflation spiking, forex rates diverging and increasing downside risk to financial stability, the challenge before monetary policy continues to be how to achieve a balancing act amongst competing policy objectives.
Afrinvest added: “Whilst we believe the current recessionary shock conventionally calls for a more accommodative fiscal and monetary policy alongside structural reforms to jumpstart growth, we think the MPC will likely not take this path given that fiscal, forex liquidity and terms of trade realities are constraining policy options.
“Also, by tightening at the last meeting, the MPC Crossed a Rubicon and to backtrack yet again will jeopardise efforts at ensuring policy consistency and restoring credibility. Thus, we expect the MPC to maintain status quo on policy rates and wait on impacts of fiscal stimulus, talks on reaching a détente with Niger-Delta militants and full implementation of recent forex reforms.”
Also, commenting on the move by the federal government to raise $1 billion from Eurobonds by mid-December and also borrow externally, Johannesburg-based sub-Saharan Africa Economist at Renaissance Capital (RenCap), Yvonne Mhango stated in a note at the weekend, that she expect the impact of the foreign loans on the country’s FX reserves (and by implication the naira) to be very small, probably negligible. However, she expects its impact on the government’s capital expenditure spending, and by implication growth, to be more meaningful.
