Bamidele Ogunwusi and Chidi Ugwu
Lagos / Abuja –Â There were no surprises as the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted to leave key monetary policy rates unchanged for the fourteenth time at the end of its two-day meeting on Thursday in Abuja.
The committee decided to retain monetary policy rate (MPR) at 14.0 percent; maintain the asymmetric corridor around the MPR at +200/-500bpbs; hold cash reserves ratio (CRR) at 22.5 percent, and keep liquidity ratio at 30 percent.
The rate retention came amidst strong concerns for inflationary pressure from the anticipated heavy spending for year-end celebrations, election campaign, and the proposed increase in minimum wage.
All the 11 members of the MPC unanimously voted to retain the monetary policy at 14 percent, cash reserve ratio at 22.5 percent, liquidity ratio at 30 percent and a +200/-500 basis points asymmetric corridor around the MPR.
The prospective increase in minimum wage to N30, 000/month, inflationary rates, continued portfolio outflows, and increasing political uncertainty ahead of the 2019 general elections which were expected to guide the committeeâ€
s decision, at this point, seemed not to be significant factors as yet.
The meeting considered lower global growth outlook amid contraction in global economic output, volatile global financial markets, slow growth in China due to trade tensions, Iran oil sanctions, and stronger US dollar. Hence, 2018 global growth forecast was lowered to 3.7% (from 3.9%) with emerging/developing economies expected to slow to 4.7% in 2018 (from 4.9%) while growth forecast for advanced economies was retained at 2.4%.
It also considered Nigeriaâ€s real sector growth expected to expand by 1.75%, supported by FX stability amid sustained intervention by CBN while financial system stability indicators such as NPLs and CAR improved. However, weak external buffers and FPI outflows remain major concerns.
Also, the meeting considered that the outlook to domestic growth is dependent on implementation of ERGP, enhanced credit to real sector, stability in FX rate and increased productivity in oil and non-oil sectors.
Current downside risks to growth include low domestic credit to SMEs and weak aggregate demand. Current upside risks to inflation include increases in fiscal, election, and festive spending. Howbeit, both risks appear to be contained.
Addressing journalists in Abuja at the end of the MPCâ€s meeting, Godwin Emefiele, CBN governor, explained that the committee believes that the marginal drop in Octoberâ€s inflation figure from 11.28 percent to 11.26 percent was seasonal and sustainable, adding that the upside risk to inflation still remains.
“Committee noted the benign performance of inflation, a drop in headline inflation was driven by food inflation which moderated, core inflation, however, came up marginally,� he said.
“The committee noted that the moderation in inflation was largely seasonally driven and was therefore unsustainable as prices were expected to pick towards the end of the year. The MPC observed that the near-time upside risk to inflation remains.�
According to Emefiele, the committee advised that the Anchor Borrowers†Programme be extended to fish and palm oil production.
He said committee members were of the opinion that tightening will dampen investor confidence while loosening will rapidly reverse the stability being witnessed in the exchange rate regime and depress the capital market.
Reacting, Lukman Otunuga, FXTM Research Analyst, said it should be no surprise that the Central Bank of Nigeria (CBN) has left the benchmark interest rate unchanged at 14 percent in November.
“The combination of oil price uncertainty, falling reserves, lingering inflationary pressures, an appreciating dollar and other external risks have forced the CBN to maintain the status quo on monetary policy.�
He, however, believes that a rate cut during the first quarter of 2019 remains a possibility but some key prerequisites must be achieved.
“Inflationary pressures need to moderate further while economic growth must display further signs of recovery. Although the nation remains on a quest to diversify from oil reliance, a fair chunk of government revenue is still realised from oil sales.”
“With oil trading at depressed levels, its impacts are likely to be felt on the economy and naira exchange. If the economic conditions brighten before the presidential election next year, the CBN still has a chance to cut rates in a bid to simulate growth,� he concluded.
Analysts at Cowry Asset are of the opinion that the MPCâ€s decision to tighten monetary policy was in line with their expectation as stated in the companyâ€s weekly financial markets review and outlook.
“We believe inflationary threats from Christmas spending and FPI outflows could be tamed using the CBNâ€s Open Market Operations (OMO) daily auctions. We also expect a status quo policy pronouncement when next the MPC meets in January 2019 – despite upside risk to inflation from expected increase in political spending as such risk should be short-lived,â€� they wrote.
The post MPC Keeps Rates Over Oil Price Uncertainty, Falling Reserves Concerns appeared first on Independent Newspapers Nigeria.
MPC Keeps Rates Over Oil Price Uncertainty, Falling Reserves Concerns
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