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Analysts see rates retained as MPC meets

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There are high expectations of retaining rates by analysts as the Monetary Policy Meeting (MPC) comes out with the policy direction in the sector for the first time in 2017 as it commences meeting today.

Former MPC member and Director General of the West African Institute for Financial and Economic Management, Professor, Akpan H. Ekpo, said the CBN had better retain the rates at the moment because whatever decisions taken may have very minimal impact at the moment.

He said one way the MPC would make some impact now is to cut down drastically the MPR or benchmark interest rate from the current 14 percent to about 8 percent. “And I am sure they won’t do that at the moment.

He also suggested that the monetary policy authorities should ensure the reduction of the multiple exchange rates markets quickly and ensure massive injection of forex to stabilize the local currency.

Similarly, analysts at FSDH Merchant Bank said: “We expect the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to hold rates at the current levels when it meets on January 23-24, 2017. Although the inflationary pressure and weak exchange rate justify a rate hike, it may be a difficult policy given the need to implement policies to boost growth in the economy.”

They also noted that the CBN would continue to use the Open Market Operations (OMO) to manage liquidity to achieve the desired goals in the short-term.

At its November 2016 meeting, the MPC maintained the Monetary Policy Rate (MPR) at 14%, with the asymmetric corridor at +200 basis points and -700 basis points; and retained the Cash Reserve Requirement (CRR) and Liquidity Ratio (LR) at 22.50% and 30% respectively.

Also, analysts at Financial Derivatives Company (FDC) in their projection said: “We do not expect the Monetary Policy Committee to make any significant adjustments to rates in its meeting this month. Thus, interest rates are projected to remain within the band of 7% – 12% for the rest of January.

For analysts at Afrinvest, the MPC meeting is coming against the backdrop of tightening external market for trade and capital, underlined by the US Fed hike in interest rate in December 2016 (and rise in fixed income yields) which they believe would subdue capital flows into emerging markets and developing countries in 2017, whilst the uncertainties surrounding the implementation of BREXIT remained a concern.

The analysts argued that, despite the instability in macroeconomic variables, they did not expect a tweak in policy rates given the limited scope for easing or tightening and reluctance of the central bank to shift FX rate peg.

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