By Chioma Obinagwam
As the Monetary Policy Committee (MPC) of Nigeria’s apex bank, the Central Bank of Nigeria (CBN), warm-ups for its 268th meeting, reactions have continued to trickle in with regards to the outcome of the meeting.
Some analysts are of the opinion that the CBN would leave the policy rates unchanged.
Retrospectively, the 267th MPC meeting which held in May, 2019 saw the apex bank retaining the Monetary Policy Rate at 13.50 per cent; asymmetric corridor at +200/-500 basis points (bps) around the MPR; the Cash Reserve Ratio (CRR) at 22.5 per cent and the Liquidity Ratio at 30 per cent.
However, recent trends in the macro-economic space also inform this decision; prominent among them include the current disinflation stance of the economy, where headline inflation rate moderated to 11.2 percent Year on Year (Y-o-Y) in June 2019 from 11.4 percent in the corresponding month of May of the same year.
According to Afrinvest, a leading independent investment banking firm with a focus on West Africa, “In the upcoming meeting of the MPC of the CBN between July 22nd and 23rd 2019, we expect rates to be kept at current levels but the tone of members to support monetary easing.
” We note that monetary easing is already on course in the debt market as the MPR is only symbolic. We expect the CBN to continue to ease by guiding yields downward through its less aggressive liquidity management operations.”
Although Nigeria’s external position has not been cheerful evidenced by the negative balance of trade (trade deficits) followed by a reduction in remittances as well as sustained weakness in the income and services account, the sustained disinflation witnessed in the economy supports the monetary easing.
Corroborating, Cordros Capital Limited, a leading financial services group in African Markets with a reputation for wealth creation, noted that the status quo will be maintained by the MPC owing to their interest in maintaining price stability in addition to the sizeable Open Market Operations (OMO) bills which would mature in the fourth quarter (Q4) of 2019.
“Although the domestic economic environment appears to support a rate cut with inflation currently below the 12.00 percent level, a level above which the committee believes growth will become pressured, we believe that the committee will remain cautious and focus on its overarching aim of keeping price levels stable,” Cordros explained.
Nonetheless, as recent directives by the reappointed governor of the CBN, Godwin Emefiele on lending to the real sector by Deposit Money Banks (DMBs) holds sway, Ambrose Omordion, analysts at Investdata, a leading professional services provider committed to providing investment information to enhance investor’s profitability level, argues that a cut in interest rate is critical in achieving the objective.
He said,”The CBN should further drop interest rates so that people can have access to cheap funds.”
Emefiele, who in line with his five-year strategic plan, had directed Deposit Money Banks (DMBs) to set aside 60 percent of their deposits for lending to the real sector (globally adjudged the engine of any thriving economy) come September 2019.
Hopefully, as the 268th MPC meeting, the third since this year, begins today, Monday July 22, 2019, maintaining existing monetary policy stance amidst improvements in the easing talks seem inevitable.