Analysts call out CBN over MPC rates retention

By Moses Obajemu

• Afrinvest‭, ‬Cordros say not growth-oriented
• CBN using unconventional approach
• CBN affraid of FPIs‭, ‬forex backlash
• Others say Voodoo economics at play
• Go back to convention‭, ‬restore MPR’s relevance

The Central Bank of Nigeria (CBN) has been seriously called out by analysts at two leading investment houses in the country over the decision of its Monetary Policy Committee (MPC) to hold all existing rates at its September monetary policy meeting that ended in Abuja on Friday.

The analysts at Afrinvest Limited and Cordros Capital in their commentary notes on the outcome of the meeting described the decision by the CBN MPC to leave all policy rates unchanged, especially the monetary policy rate (MPR), as one driven by the desire to halt heightened capital flights and its attendant negative impact on inflation and currency at the expense of spurring development through rate cut.

“To our mind, of all factors competing for attention, heightened capital flight, with its attendant negative impact on inflation and currency, was at the crux of the committee’s decision.

“Going forward, against the elevated maturity profile in Q4 19 (NGN4.1 trillion), together with the shaky crude oil price outlook, both of which could potentially disrupt the CBN’s mandate of currency and price stability, we see a lower chance of a rate cut through the rest of the year,” Cordros Capital analysts wrote in an investors noted seen by business a.m.

By their account, the need to retain till the end of the year, about N4.1 trillion foreign investors’ funds due for maturity at the end of the fourth quarter of the year, may have played a crucial role in the decision of the MPC.

The reasoning is that if MPR had been cut, the foreign investors might have, in a flurry, moved their money out, which could potentially trigger a foreign exchange crisis.

On their part, analysts at Afrinvest said the decision of the MPC to hold all rates means that the CBN would continue its unconventional approach to monetary easing.

“We expect sustained pressure on the banks to boost lending as the September 30, 2019 deadline for meeting the minimum Loan to Deposit Ratio (LDR) of 60.0% looms.

“Similarly, we expect CBN’s development financing interventions to be expanded to support growth. In our opinion, there is a need to go back to convention by restoring the relevance of the MPR as a policy instrument necessary for guiding monetary policy,” they said.

They described the strategy the MPC is using to guide growth as unconventional when considered along with the positions taken by other central banks in recent times.

“We note that the sentiment of members towards easing monetary conditions weakened relative to the July meeting, against the recent dovish stance by central banks in advanced economies.

“There have been rate cuts in systemically important central banks to boost growth as a result of the slowdown in the global economy. This week, the Federal Open Market Committee (FOMC) of the US Federal Reserve cut policy rate by 25bps to 1.75%-2.00% in its September 2019 meeting, the second rate cut since 2008,” they said.

Federal Reserve policy makers lowered their main interest rate for a second time this year while splitting over the need for further easing, caught between uncertainty over trade and global growth and a domestic economy that’s holding up well.

The benchmark rate was lowered by a quarter percentage point to a range of 1.75% to 2% “in light of the implications of global developments for the economic outlook as well as muted inflation pressures,’’ the Federal Open Market Committee said in a statement in Washington. It continued to characterize the U.S. labour market as “strong” with “solid” job gains.