Analysts say MPC to leave rates, but soften dovish stance on growth path

Economic analysts have said they expect the Centrabl Bank of Nigeria (CBN) Monetary Policy Committee to maintain status quo on all policy parameters but that it will soften its dovish tone, while considering several factors which might make it reluctant to ease monetary policy stance, despite its implication for economic recovery.

Uche Uwaleke, an economic expert and a capital market professor, in his pre-MPC note to Business A.M. said it would be desirable to keep all policy parameters constant in a bid to spur recovery in the economy. He, however, sounded that the policy committee may not take this path as all eyes will be on the apex bank to see if it would take any steps to ease parallel market pressures.

“I expect the MPC to maintain the status quo and hold all policy parameters. It would have been desirable to reduce the MPR by a few basis points in order to spur economic recovery. But this path may not be taken given the current pressure in the forex market and the widening gap between the official, I&E, exchange rates and the parallel market rates.

“Further, the inflation rate, though decelerating, is still elevated and way beyond the CBN’s upper band of 9 percent. Also, a reduction in MPR may not be in the interest of foreign investors who are usually incentivised by higher interest rates.

“On the other hand, raising the MPR at this time will hurt recovery via increase in cost of capital especially for SMEs. It will equally slow down the stock market which is still experiencing weak investors’ sentiments,” he concluded.

Similar to the view held by Uwaleke, economic analysts at Cordros Capital said: “To avoid alteration to the ongoing recovery path, the Central Bank Monetary Policy Committee (MPC) is expected to keep its accommodative stance on the Nigerian economy but soften the dovish tone.

“Growth is still uneven, even as the domestic economy remains vulnerable to external shocks. The fragile recovery process would induce the committee to favour a standing path on its monetary policy decisions,” they noted.

For the fifth time in the year, the Monetary Policy Committee (MPC) will be meeting in Abuja to discuss, among other topics, developments in the global and domestic economies since its last sitting to decide the next monetary policy action suitable to achieve the committee’s objectives as the economy continues its path to full recovery. This time, a major policy pronouncement could be in view, but it remains uncertain what the policy would speak to, if any.

For investors, as well as other stakeholders in Nigeria, all eyes will be on the MPC meeting, which will be held Thursday and Friday, to see if it would take any steps to ease parallel market pressures. It can be recalled that the last MPC meeting held in July saw the CBN maintain all parameters in line with expectations for the fifth time and counting, in a bid to allow the base effect permeate the economy while it hoped to rein in inflation, stimulate lending to the private sector, as well as maintain its pro-growth strategy from its accommodative stance.

Consequently, the committee collectively voted to keep the Monetary Policy Rate (MPR) at 11.5 percent citing the need to support economic growth, while keeping inflationary pressures at bay. Similarly, the asymmetric corridor was maintained at +100 basis points/-700 basis points, the Cash Reserve Ratio (CRR) at 27.5 percent, and the Liquidity Ratio (LR) at 30 percent, respectively.

Nevertheless, given the bank’s continuous reiteration that foreign exchange dealings outside of the official market are illicit, as well as, its historical hard stance towards the BDCs and parallel market, several analysts think the regulator may remain unwilling to reverse its earlier decision to stop FX sales to BDCs after the surprise turn of events where the Central Bank governor announced that the apex bank will halt the sale of foreign exchange (FX) to Bureau De Change (BDCs) operators, and also stop the issuance of new BDC licenses in the country.

Other major areas for consideration at the MPC meeting come Thursday and Friday include: