Industry experts have said that Nigerians and financial stakeholders should not expect any changes in the nation’s monetary indices, as the monetary policy committee (MPC) of the Central Bank of Nigeria (CBN) conclude its first meeting of the year today
They believe there is a need for the apex bank to retain the monetary rate and all other indices, so as to curb the rising inflation, currently at 18.55 percent, especially with widespread speculation of fuel price increase.
The MPR, which is the benchmark interest rate was retained at 14 percent by MPC at its 253rd meeting in November last year. It predicated its decision on the need to mitigate the fragile macroeconomic conditions and the strong headwinds confronting the economy, particularly the implications of the twin deficits of current account and budget deficits.
According to the Chief Economist and Managing Director, Global Research, Africa, Standard Chartered Bank, Razia Khan, who presented the bank’s position, “The absence of any further policy measures on FX liberalisation suggests that the CBN will be quite comfortable keeping interest rates on hold at next week’s (this week’s) MPC meeting.”
“Although inflation has been pressured higher, further tightening would be more plausible if there was some expectation that it might trigger a positive response from offshore portfolio investors, and bring about greater FX inflows. These plans look to have been put on the backburner for the moment,” Khan added.
“Could the CBN cut interest rates?” Khan said, “We think not, despite weak growth.”
In her words: “Inflation in y/y terms is likely to remain elevated for a while still. There is also some disquiet about the recent spike in money supply, and how much of an inflation threat it represents. The CBN may well have to wait for evidence of a pronounced base effect driving y/y inflation down, before it can think about easing policy.”
In his analysis, the Chief Executive Officer, The CFG Advisory, Adetilewa Adebajo, stated that the main challenge for the MPC this New Year is “taming the inflation monster.”
“At 18.6 per cent inflation is at a 10-year high. It is also likely that 2016 Q4 GDP growth will close around -2 per cent in negative territory. Since there is a strong historical correlation in Nigeria between positive GDP growth and lower rates of inflation, the MPC will have to adapt inflation reduction policies to expect positive GDP growth in 2017.”
Adebajo contended that, “The prospects of increasing interest rates to tame inflation might not go down well with the Real Sector, but the impending increase in fuel pump prices and the related impact on spiking inflation will present a dilemma for the MPC. While a pre-emptive rise in rates might be strongly considered, it is likely that the MPC will hold rates and maintain status quo.”
Besides, the economist noted that, “The markets will also look for comments from the MPC, in an effort to restore confidence and harmonize the FX markets.”
To the Executive Director, Corporate Finance, BGL Capital Ltd, Femi Ademola, “The outcome of the MPC meeting is the most difficult to predict in recent times.”