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CBN will maintain status quo on policy rates – Analysts

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By Chioma Obinagwam
As the last Monetary Policy Committee (MPC) meeting for the year enters it’s second day, Analysts at Afrinvest Limited,  an independent investment banking firm with a focus on West Africa, have predicted that the policy rates- Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR), Liquidity Ratio and Asymmetric Window, will remain the same.
They said, “We believe the MPC will maintain status quo on all policy rates – Monetary Policy Rate (MPR) at 14.0 per cent, Cash Reserve Ratio (CRR) at 22.5 per cent, Liquidity Ratio at 30.0 per cent and Asymmetric Window at +200 and -500bps around the MPR.”
“We believe the MPR will be kept at 14.0 per cent to maintain the delicate balance between the downside risks to inflation, investment outflows and growth. Given that risks to inflation remain moderate and concentrated on the supply side, increasing interest rate will be ineffective to curb inflation,” they added.
The analysts said they expect the committee to deliberate on the decline in oil prices, further rate hikes in the US, the prospective increase in minimum wage to N30,000/month, higher inflation rates, continued portfolio outflows and increasing political uncertainty ahead of the 2019 general elections.
Afrinvest analysts believe that the the increase in minimum wage to N30,000 per month is not a threat to inflation.
They argued that inflation remains driven by supply side factors such as food shortages.
The analysts were quick to add that since the committee last met, inflation has accelerated to 11.3 per cent in September and expect it to be sustained for the rest of 2018.
“However, this does not paint the complete picture of inflationary trends. The recent rise in inflation rates mainly reflects a low base as Month on Month (M-o-M) inflation decelerated to 0.8 per cent in September 2018 (August: 1.1). This slowdown is mainly due to the harvest season which prompted a moderation in food prices. Also, core inflation which policymakers watch keenly has fallen to 9.8 per cent- the lowest since January 2016,”  they explained.

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