Analysts optimistic over MPC’s rates retention
By Joshua Elekwachi, Abuja
Ahead of the first Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) meeting this year, analysts have expressed optimism that the committee would vote for rates retention.
The MPC is expected to hold its first meetings of the year on Jan. 25 and Jan. 26.
Recall that the MPC, at its last meeting in November 2020, had decided by a unanimous vote to retain all parameters.
This was done towards reversing the recession and achieving medium term macroeconomic stability.
The MPC, at the meeting, had voted to retain the MPR at 11.5 per cent. It retained the asymmetric corridor of +100/-700 basis points around the MPR. The committee also retained the Cash Reserve Ratio (CRR) at 27.5 per cent and the Liquidity Ratio at 30 per cent.
Analysts in a chat with our correspondent stated that the members of the MPC are faced with inflation rate and foreign exchange rate stability, stressing that members are to retain status quo on its rates.
A financial economist and a Professor of Capital Market at the Nasarawa State University Keffi, Prof. Uche Uwaleke, said, “The choices before the MPC will be whether to reduce, increase or hold the rates.
“While on the one hand, a rate cut is justified by need for the CBN to support economic recovery efforts of the government.
“On the other hand, the need to stabilize Exchange rate as well as tackle the rising inflation favours tightening monetary policy.
“So, the challenge before the MPC will be to strike a balance between supporting economic growth and curbing rising inflation. This balance of risk would dictate that the MPC holds all the policy rates in January.
“Doing so will allow the CBN some more time to monitor macroeconomic response to the present accommodative monetary policy stance before possibly making any adjustment in future meetings of the MPC.
“So, I expect the MPC to maintain the status quo this January. That is, MPR at 11.5 per cent, CRR at 27.5 per cent and Liquidity ratio at 30per cent.”
An Enterprise development expert, Kuti Abraham, said, “There seems to be no significant improvement in factors affecting the economy, in as much as we look out for a meaningful outcome of the meeting, the CBN might choose to retain it policy of 11.50 per or possibly do a little tweak of which I don’t see the possibility.
“We should know the CBN is a body to regulate the monetary and financial sector as result they are fundamental dealing with effects and not the root of economic problem we are facing at present.
“The government might need to put all hands on deck in 2021 to improve on economy, we still have challenges of insecurities on the increase because of the conflict between the two major ways we get our food. ‘livestock’ versus ‘Plantation’ equals to ‘Zero Food’ in the market, how can the CBN Monetary policy help in such situation?
“Don’t forget while the government laments and tries to tackle unemployment, the providers of the poor man’s major need, food, are becoming unemployed, creating two challenges.
“Reduction in food production output and Increase in unemployment in the agriculture sector, adding to the unemployment number already on ground.
“So personally, the meeting might seem more of formality till the 278th meeting which the apex body might have better insight into how year 2021 might look like and make a better policy to complement government efforts.”
Cordros Research, in its pre-MPC report, predicted that the committee would again keep policy rates unchanged.
The report said the committee would affirm use of unorthodox measures such as Cash Reserve Requirement debits, Loan-to-Deposit Ratio and direct intervention in employment-stimulating sectors to influence macroeconomic outcomes and ultimately attain macroeconomic stability.
“We also expect the committee to reiterate its resolve to keep yields at low levels in the near term to compel deposit money banks to boost private sector credit, while also easing deficit financing pressures at a time when revenue from oil and non-oil sources are pressured.
“We expect the committee to assess the developments in the domestic and external macroeconomic and financial markets since its last meeting in November and provide guidance on the path of monetary policy in 2021,” read the report in part.
The report added that economic recovery would likely be prolonged due to rise in new COVID-19 cases.
“On the domestic front, we believe the recent rise in new COVID-19 cases will be on the front burner given the potential to unwind gains from fiscal and monetary stimulus since the reopening of the economy in May 2020,” it read.
The report indicated that mounting inflationary pressures had also intensified since the last MPC meeting in November.
