280th MPC meeting: Mixed reactions trail cut in CBN’s interest rate, other parameters

…formulate economic security — Analysts urge

By Matthew Denis & Aanu Olaleye, Abuja

As the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) meeting commenced on Monday, analysts have expressed that inflation rate, imbalance in external sector, among others are expected to take centre stage on possible cut in interest rate, other monetary parameters.

The nation’s foreign reserve has decreased by $1.12 billion or 3.3 per cent since the last policy meeting to $33.17 billion as of 19th July 2021.

The decline in the foreign exchange reserve is tied to the increase in foreign exchange sales to Foreign Portfolio Investment (FPI) and manufacturers to meet the growing demand for goods, given the reopening of the economy.

The Governor of CBN, Mr. Godwin Emefiele at the 279th MPC meeting announced that the 10 members of the committee, unanimously voted to retain interest rate also called Monetary Policy Rate (MPR)  at 11.5per cent alongside Cash Reserve Ratio at 27.5 per cent and Liquidity Ratio at 30 per cent.

Analysts have expressed that the committee might assess global and domestic macroeconomic and financial market developments and provide forward guidance on the timing of a change in monetary policy stance.

The nation’s economic activities continued to expand, amid opening of the economy, increased cross-border activities, impact of CBN and government intervention to critical sectors and rally in global oil prices.

Since the last policy meeting in May, economic activities have continued to improve despite the emergence of a delta variant of the COVID-19 virus worldwide.

The hike increase in inflationary pressures continues to moderate, suggesting that the inflation rate for 2021 might have reached its peak in March (18.17 per cent), barring no major shock over the rest of the year.

Pertinently, the headline inflation moderated for the third consecutive month to 17.75per cent in June (May: 17.93 per cent), driven mainly by the high base effects from the prior year.

Although food prices remain high, we note that its 45basis points moderation to 21.83 per cent in June was the third consecutive month of the moderate increase and the lowest since February 2021 (21.79 per cent).

On the external front, Nigerian NewsDirect can report that the sustained administration of COVID-19 vaccines and sizeable fiscal and monetary stimulus, coupled with the spread of delta variant in advanced economies has softened optimism on trade.

According to analysts at Cordros Securities, “We expect the Committee to attribute the inflation moderation to the CBN’s intervention to the critical sectors of the economy to boost output and improve the supply of commodities.

“Accordingly, we believe the Committee would reiterate the need for the Federal Government to step up its fight against insecurity and improve critical infrastructure to make the business environment more conducive.

“Against this backdrop, we believe the Committee will feel the need to maintain its monetary policy stance and allow its interventions to continue to support recovery in economic activities.”

In a different perspective, financial experts have called the CBN to tailor the oncoming meeting in forming synergy with other government agencies and stakeholders to prioritize insecurity as panacea towards ensuring economic stability than policies formulation.

Speaking with Nigerian NewsDirect, the Executive Director, the Nigerian Workforce Strategy and Enlightenment Centre (NIWOSEC) and Fellow Chartered Public Administrator, Dr David Kayode Ehindero , said “The CBN intervention in revitalizing and reengineering for recovery, most especially the agric sector, among other non oil sectors is commendable, but the security challenges and the unending challenges of the power sector has made quiet ineffective the efforts.

“I think the CBN needs collaborative efforts of the concerns agencies to achieve financial and economic stability.”

He posted that urgent need to review downward interest rate and unending Bank charges by our financial institution is overdue, Nigerians are looking at options of avoiding Banks

A Chartered Accountant, Mr. Chinedu urged  the CBN to setup a committee that will have a face to face interactions with the traders and professional organizations to formulate policies for the masses that will shape the economic not just elites at the MPC meeting.

According to him, the component of the MPC members doesn’t reflect the chokehold of the heterogeneous Nigerian society.

Another Chartered Accountant, Mr. Idowu Alege said “I expected the MPC members to dissect its beam light on addressing economic security rather than formulating monetary policies.

He emphasized that rising inflation rate on daily basis because of shortage of foodstuff supply by the farmers due to insecurity in the country therefore, the economic stability depends on how peaceful the country lies.

Alege added that our Gross Domestic Product (GDP) acclaimed as the largest in Africa can only swim when issues of unrest in the country is tackled, calling on CBN to give security a priority at the 280th MPC meeting.

Speaking from a different perspective, Head, Retail Investment of Chapel Hill Denham, Mr. Ayodeji Ebo in his reaction to the last MPC decision said that it was a  dovish approach as anticipated, pointing out that the Central Bank was focused on driving growth rather than reining in inflation.

On the implications of the retention of the interest rates on Nigerian households, he mentioned that there was no change in the key policy rates and as such there would be less reaction by the average Nigerian household. He also stated that according to the Governor of the Central Bank, the intervention funds made available to Nigerians across all sectors would be sustained, such as The Nigerian Youths Investment Funds, Anchors Borrowers Scheme, etc.

He recommended that rather than focus on the Central Bank’s intervention funds, there was a need for a structure that would encourage domestic private participation in the economy to increase output.

He, however, noted that there could have been an impact on the equities market and fixed income market if the rates had increased, leading to a downward trend.

Ayodeji advised investors to trade with caution in the market.

He further suggested that if there was complete removal of petroleum subsidy, there will be an adverse impact on the cost of energy alongside other tariffs.

Analysts at Cordros securities added that, “Like the May meeting, where there was uniformity in voting patterns among members of the Committee, we anticipate there would be a similar outcome at this meeting.

“We think the Committee will reiterate that the MPC needs to maintain its accommodative monetary stance in the short term to enable economic growth to gain a foothold.

“That said, we expect that the Committee will emphasise the need for the apex bank to sustain the use of its administrative measures and secondary “toolbox” such as the (1) Naira for Dollar Scheme, (2) CRR debits, (3) Open Market Operations (OMO) and (4) direct intervention in the agriculture and manufacturing sectors to achieving the competing goals of price/exchange rate stability and supporting economic recovery.

“Therefore, we expect the Committee to maintain the status quo on all monetary policy parameters at this meeting on a balance of factors.

“However, we expect the underlying tone of the Committee to be neutral, given the still elevated domestic inflationary pressures and imbalances in the external sector.”