The Monetary Policy Committee (MPC) is set to hold its first meeting this year between January 25 and 26 with thorough assessment of existing and emerging policies in line with the recent international and domestic developments and their implications on the domestic economy.
However, most of the analysts were unanimous in their submissions that the key parameters would be left unchanged; MPR at 11.50%, Asymmetric corridor at +100/-700bps around the MPR, Cash Reserve ratio (CRR) at 27.50%, and Liquidity Ratio at 30%.
Also, despite the fragile stability of prices of oil at the international market, the much expected rollouts and efficacy of COVID-19 vaccinations will be part of the considerations for maintenance of status quo
Beside the “Heightened level of inflationary pressures, the insecurity challenges, surging Covid-19 cases accompanied by movement restrictions, persistent FX strains, the downbeat PMI data, amongst others. Ultimately, we envisage the committee would strike a balance between stimulating growth and putting inflationary pressures under control,” say analysts at Greenwich Merchant Bank
According to them, at the “Last MPC meeting, the Committee weighed strongly its options of either hiking, or maintaining status quo. In view of spiralling inflation, the Committee felt the appropriate decision would be to tighten its current position, as this should stem inflationary pressures, but at the detriment of stimulating credit growth, particularly to the real sector.”
Continuing in their weekly review, they said, “Our premise for a rate hold is based on two factors. Firstly, the burgeoning need to stimulate economic activities and create jobs, in a bid to boost a quicker economic rebound. Secondly, the Federal Government’s need to foster a closer co-ordination of monetary and fiscal policies to accelerate growth in the country. Thereby, we expect the MPC would retain its current monetary policy stance. We opine that it might take a while for growth to return to its pre-pandemic levels, as domestic demand is set to remain weak. However, a low base effect and an anticipated pick-up in the non-oil sector underpins growth in the positive territory.”
The implication, according to them is that ahead of the meeting, “We expect the market to be muted in search of market direction for the year. However, we expect the Committee to hold MPR at current levels with a likelihood that other parameters may be used to curtail lingering liquidity in the system in a bid to tame the accelerating inflation.”
Bismark Rewane, chief executive of the Financial Derivatives Company (FDC) in the current Economic Bulletin for January 22, said “2021 is already running away but the level of uncertainty remains elevated. The known unknowns are still relatively high. The Nigerian economy is expected to recover mainly in the second half with positive growth of 1-1.2% but the problem is three words… Inflation! Inflation!! Inflation!!!.
He then asked a rhetorical question, “How does Nigeria get rid of this cankerworm? Interest rates are 18% below food inflation, Diaspora remittances are being exchanged at multiple rates and government debt is still a burden. The reality is that the road to recovery will be hard and uneven while the pace will depend on the effectiveness of fiscal, monetary and trade policies. In spite of the economic recovery, the resolution of multidimensional poverty remains the major challenge.”
