The Central Bank of Nigeria (CBN)-led Monetary Policy Committee (MPC) will consolidate on the gains of the foreign exchange policy which has ensured stability as well as the continuous drop in inflation rate at its meeting today and tomorrow.
The committee is likely to maintain the status quo on all rates according to analysts.
The decision at the meeting, the fifth this year, is likely to keep the Monetary Policy Rate (MPR), which is the benchmark interest rate, unchanged at 14 per cent, the Cash Reserve Ratio (CRR)at 22.5 per cent, Liquidity Ratio at 30 per cent and the Asymmetric corridor at +200 and -500 basis points around the MPR- benchmark interest rate.
Managing Director, Afrinvest West Africa Limited Ike Chioke explained at the weekend that the committee members had agreed on the need for more fiscal-monetary policy coordination to sustain improvements in domestic macroeconomic fundamentals.
He said with the economy now running out of high base effect driven moderation in headline inflation, there is likelihood that inflation rate will rise for the first time since the start of the year in September.
He said given supposed price-anchored monetary policy regime, the MPC is not likely to cut benchmark rate in a period of rising inflation expectation.
“MPR has become a less effective Monetary Policy Tool: the case for easing via benchmark rate reduction becomes weaker if the current disparity between the benchmark rate and short-term fixed income yields is taken into consideration. Although the recent bullish streak in the fixed income market has narrowed this spread, it is not enough to justify a cut in interest.
“While our medium term outlook favours a gradual monetary easing, we believe the stabilisation of the forex market is paramount to achieving monetary policy objectives. The forex market, despite improvements recorded so far in the year, is still in a fragile state as the CBN is yet to harmonise all rates at the official market. As such, in the event that a unified rate is not achieved, monetary easing poses a threat for forex stability”.
He said the current realities of Nigeria’s budget deficit, suggests the need for the fiscal authorities to continuously fund this disparity, which present tightening stance enhances; though at a higher cost to government.
Managing Director Cowry Assets Management Limited Johnson Chukwu agreed with Chioke that the MPC will keep rates unchanged.
“They will keep the rates the way they are. Inflation has moderated to 16.01 per cent and the economy has wriggled out of recession. So, this is not the right time to tamper with rates especially as the economic indicators are moving to positive direction,” he said.
At the official market, the CBN continued with its weekly Small and Medium Ebterprises sales worth $100 million for spot and short tenured forwards under 60 Days while the Official rate improved from N305.95/$1 the preceding Friday to N305.90/$1 on Monday before eventually closing the week at N305.85/$1.
This implies a marginal 3bps appreciation Week-on-Week. Similarly, at the interbank market, the domestic currency depreciated from N354.99/$1.00 on Monday to N356.99/$1 on Wednesday, but strengthened to N353.50/$1 by the close of the week, up 0.4 per cent Week-on-Week.
At the parallel market, the naira exchanged for N369.70/$1 on Monday, strengthened to N367/$1.00 on Tuesday and traded flattish till the end of the week, up 0.5 per cent Week-on-Week.
Despite the spate of forex interventions by the CBN, the external reserves have remained on the uptrend, reaching a 31-month high of $31.9 billion on September 19. This accretion to the reserves has been largely due to the stability in oil prices as well as improved production volumes and we believe this will give the CBN more impetus to continue with its interventions.
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