Analysts at Nigeria’s Access Bank and FBNQuest are betting that the country’s key monetary policy rates would be retained at the ongoing Central Bank Monetary Policy Committee meeting which ends, Tuesday.
Godwin Emefiele, governor of the CBN, who is chairing the meeting, is expected to announce decisions reached after two days of deliberations and the analysts teams at Access Bank and FBNQuest in separate position statements issued, believe that monetary policy rate (MPR) will be retained at 14 percent, leaving the asymmetric corridor of +200 basis points and -500 basis points also unchanged.
Access Bank Economic Intelligence Unit says this position was taken after considering local and global economic developments since the last rates were announced after the March MPC meetings, including exchange rates, external reserves, GDP number for the close of 2016 and inflation on the domestic front; and global upturn in economic growth, Purchasing Manager’s Index outlook, crude oil prices and global inflation.
“Despite the easing of inflation, we expect the apex bank to maintain rates in an attempt to anchor the downward inflation trend,” it explained, adding that, “ the MPC is also likely to view the recent passage of the 2017 budget by the National Assembly as further evidence that fiscal stimulus to jump-start economic recovery is underway.”
The analyst team also made a call on retention of Cash Reserve Requirement (CRR) for banks at 22.5 percent and Liquidity Ratio at 30 percent. It also sees no change in foreign exchange policy stance of the committee, following recent changes put in place by the bank in April.
FBNQuest was emphatic in stating that, “we see an unchanged stance. In its decision it has to allow for an economy which has contracted y/y for four successive quarters and inflation which has remained stubbornly high in m/m terms.”
LtoR-Mr Taiwo Okeowo DMD FBN Capital Mr Kayode Akinkugbe MD FBN Capital Mallam Bello
The team of analysts also hinged their position on previous position of the committee, including wariness to easing when it had argued that “on the rare occasions it has cut the policy rate, the beneficiaries of the additional liquidity were not productive sectors such as agriculture but traders with substantial fx needs.” FBQ quest said while this position seems plausible, it was rather, “a reflection on bank supervision and regulation.”
Much would be expected from the fiscal authorities by the committee, especially with approval of the 2017 budget, says the FBNQuest team, and the committee is expected to call for a close of the process for the year and begin capital releases.
The team noted that supply-side constraints remain extensive, including power, fuel and some food stuffs, which it says appear anecdotal. “The medium-term outlook for inflation is reasonable, however, and in these circumstances a rate cut would also come as a surprise,” said FBNQuest.
On exchange-rate, the team said it expects plenty of commentary. “The CBN’s step-up in its fx interventions has had some positive results. The naira has appreciated on the parallel market and manufacturers are enjoying improved access to imported raw materials. Retail sentiment has been lifted and there have been stirrings from a few offshore portfolio investors. The committee may conclude that some fine-tuning is required. We question how far the CBN can expand its interventions without the depletion of reserves that it is determined to avoid.”
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