By Omodele Adigun
As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) rounds off its meetings today, the first since the country’s exit from recession, analysts are predicting it would retain most of its key rates.
According to Mr. Tope Fasua, an economy analyst, the MPC cannot afford to toy with the rate in order not to send the country back into recession.
“CBN cannot raise the Monetary Policy Rate(MPR) now because we just got out of recession,” he said. He added that if it begins to toy with the rate, the economy stands the risk of facing a bit of volatility around inflation. “And if inflation goes up, the economy will go down again. That may be reverting into recession.
What we have (that took us out of recession) is weak growth of 0.55 per cent. But if MPC reduces MPR, that will have impact on inflation rate.That means that the economy would slow down. Inflation is still at 16.01 per cent, meaning that it is still high by any standard. That means the NPC members need to watch what they have for now,” he said. Also showing similar concerns, Gaimin Nonyane, the London-based economic-research head at Ecobank International Group, who told a foreign wire service that the committee would want to avoid making any drastic move that will jeopardise the recently achieved stability in the foreign-exchange market.
His words: “The economy’s return to growth has definitely eased pressure on the authorities. High inflation and the fragile nature of the recovery will continue to undermine prospects for a rate cut. As economic imbalances reduce, we might see policy easing in either November or the first quarter of next year.”
Also, FSDH Merchant Bank Ltd., in an email message, said, “the MPC may hold rates to maintain stable domestic prices compatible with economic growth objectives, while the government implements fiscal measures to sustain growth. Fiscal measures in the form of tax relief and tariff adjustment are required to boost economic activities.”
Recall that the MPC at its July meeting retained the MPR at 14 per cent; CRR at 22.5 per cent and Liquidity Ratio at 30 per cent; and retained the Asymmetric Corridor at +200 and -500 basis points around the MPR. The MPC reiterated its call on the bank to sustain its intensive surveillance of deposit money banks’ (DMBs’) activities for the purpose of promptly identifying and addressing vulnerabilities.
Meanwhile, CBN yesterday boosted the forex market by offering $195 million in the three segments of the Forex market.
The acting Director of Corporate Communications, Mr Isaac Okorafor, in a statement, said it auctioned $100 million at the wholesale Secondary Market Intervention Sales (SMIS) window of the inter-bank Foreign Exchange market.
He said that the apex bank also intervened in the Small and Medium Enterprises (SMEs) and invisible segments, with $50 million and $45 million respectively.
The argument for holding is largely premised on the need to safeguard the stability achieved in the foreign exchange market, and to allow time for past policies to work through the economy.
Specifically, the MPC considered the high banking system liquidity level; the need to continue to attract foreign investment inflow to support the foreign exchange market and economic activity; the expansive outlook for fiscal policy in the rest of the year; the prospective election related spending, which could cause a jump in system liquidity, among others.