MPC: Analysts forecast members retaining status quo on rates to checkmate inflation
By Kayode Tokede
Analysts have forecasted that the Monetary Policy Committee (MPC) members of the Central Bank of Nigeria (CBN) will this week retain status quo on monetary rates to tackle raising inflation in the country.
The MPC meeting is scheduled for Monday and Tuesday in Abuja. At the last meeting, the members voted to retain its rates- Monetary Policy Rate (MPR) at 11.5 per cent; Cash Reserve Ratio (CRR) at 27.50 per cent, Liquidity Ratio at 30 per cent and the Asymmetric Window at plus 100 and minus 700 basis points around the MPR.
The National Bureau of Statistics (NBS) had stated that Nigeria’s inflation rate stood at 18.12per cent in April 2021, indicating a drop of 0.05 per cent compared to 18.17per cent recorded in March.
The bureau also said food inflation stood at 22.72per cent in April 2021 from 22.95 per cent recorded in the previous month, while Core Inflation increased to 12.74 per cent in April 2021 from 12.67 per cent recorded in March 2021.
According to analysts, the members will keep interest rates on hold to check quickening inflation while foreign exchange reforms taking shape will leave CBN on the sidelines too.
A group of analysts at Cordros capital said, “Like the March meeting where there was deviation in the voting pattern among members of the Committee, we anticipate there would be a similar outcome at this meeting.
“We believe the majority of the Committee will view that the MPC needs to align the MPR with prevailing rates in the market and focus on its primary mandate of price stability.
“Our baseline expectation is that most members will vote for a 50bps hike in MPR. However, we do not rule out the possibility of a 100bps hike, particularly if the Q1-21 GDP numbers surprise positively.
“We expect the underlying tone of the Committee to be hawkish given the still elevated domestic inflationary pressures and imbalances in the external sector.
“Overall, we expect the Committee will hike MPR by 50bps while keeping other monetary policy parameters unchanged.”
Cordros in its report titled, “Hike in MPR Anticipated, but Disappointing GDP Data may Restrain MPC” said, “In the domestic economy, inflationary pressures cooled down in April despite lingering supply-side challenges.
“On the external front, risks to global economic growth remain roughly balanced despite emerging bumps that could undermine reflation trade and the commodity supercycle.
“For us, the timing of this meeting could not have been better given that the Q1-21 GDP report, which in our view will form an essential basis for the Committee’s decision, will be released on 24th May. Considering past guidance from the Committee that its short-term objective is to support economic recovery, we believe the GDP report will enable the Committee to determine whether it should tweak policy tools to address the core mandate of price and exchange rate stability. In the event of a positive surprise (vs our expectation of 0.94% y/y), we see a strong possibility that most members will vote for a 50bps hike in the MPR.
“On the other hand, we think a tepid growth outturn will make the Committee hold off on interest rate hike at this meeting to enable economic growth to gain a foothold. Notwithstanding, we expect the underlying tone of the Committee to be hawkish given the still elevated domestic inflationary pressures and imbalances in the external sector.”
They expressed that the moderation in inflation in April is likely to spark a debate on whether it is transitory or a trend that will persist in the coming months.
“Our view is that the magnitude of the decline is too marginal to bring comfort to the Committee that the economy is beginning to experience disinflation. In addition, the headline inflation is still materially above the upper band of the CBN’s medium-term target of 6.00%-9.00%.
“Moreover, we believe members will be wary of the following risks that could potentially worsen inflationary pressures: (1) Repercussions of the persistent security challenges on the harvest season, (2) the growing prospect of the removal of fuel subsidy and (3) possibility of an upward adjustment in electricity tariffs. Against this backdrop, we believe the Committee will feel the need to tighten monetary policy to nullify the indirect channels through which system liquidity amplifies inflationary pressures.”
