TUE, MARCH 24 2020-theG&BJournal-The Central Bank of Nigeria (CBN) Monetary Policy Committee elected to keep all monetary metrics, in a move that surprised.
– The Monetary Policy Rate (MPR0 is retained at 13.5%
-The Asymmetric corridor around the MPR left at +200/-500 basis points
-The Cash Reserve Ratio (CRR) at 27.5%, and
-The Liquidity Ration (LR) at 30%.
The Committee considered developments in the global and domestic economy since its last meeting including the negative impact of COVID-19 on global growth, the dovish global central banks’ responses to the COVID-19, and rapid pace of decline in global oil prices.
On the domestic front, the Committee noted sustained inflationary pressure (February: +7bps to 12.20% y/y), (2) weaker oil earnings due to lower oil prices, and recent volatility in the FX market amid declining external reserves.
Some analysts, while expecting a retention of the existing rates said it would have also been appropriate to see a movement-a reduction or increase- in the MPR, which according to Lilian Olubi , CEO – EFG Hermes Nigeria Ltd, may do well to signal the pursuance of an accommodative posture.
Mohamed Abou Basha, Macroeconomic Research also at EFG Hermes expected a rate hike given the latest devaluation on Friday (just a beginning) and the potential movement in fuel prices. Both measures are likely to result in rising inflation, hence the rate hikes are warranted.
He said, ‘’Nigeria finds itself in a different cycle compared to many of its peers globally given that the crash of oil prices has immediately imposed acute pressure on its currency. As such, we think it is likely to avoid cutting rates at this stage and would probably be in need to hike them to control inflation.’’
‘’ In terms of required hikes, we’re initially looking for 100-200bps. More important than the magnitude of the cuts is that policy rates start to regain their role as the key signal for monetary policy with the CBN reducing its reliance on CRRs to control monetary policy,’’ Basha said.
‘’Our key takeaway is that the committee appeared to have lost faith in the effectiveness of a rate cut in tackling economic growth-related problems. Rather, it expressed its confidence in utilizing other expansionary toolkits to limit the impact of COVID-19 on economic activities,’’ says Cordros Securities analysts.
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