As the Monetary Policy Committee(MPC) of the Central Bank of Nigeria (CBN) convene today, Monday July 18 and Tuesday July 19 2022 for its fourth meeting of the year, analysts have said, there a likelihood that parameters will be left unchanged.
The MPC had, at its last meeting in May this year, for the first time in two and half years, raised the monetary policy rate by 150 basis points from 11.5 per cent to 13 per cent citing rising global inflation whilst admitting that the hike in MPR would increase cost of borrowing, especially in non-priority sectors of the economy.
Despite inflation reaching a five year high of 18.6 per cent in June 2022 according to latest data by the National Bureau of Statistics(NBS), analysts say, the MPC members would want to give room for the previous rate hike to have its effect on the economy before considering another rate hike or a change in parameters.
Head, Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi, while noting that the “MPC is caught between a rock and a hard place,” said he expects the members to rise from the meeting with a decision to maintain status quo.
Olubunmi, pointing out that the impact of the MPR in the real economy has been low, said: “it I going to be a tough decision. They might elect to wait a bit to see the impact of the one that they increased at the last meeting and then probably take another decision at the next one. But I don’t see them increasing it.”
For analysts at Cordros Research, the belief is that near-term inflation expectations will likely discomfort committee members, given the pass-through impact of elevated global energy prices on headline inflation.
As such, the analysts, in an emailed note, said they expect that the MPR would be retained 13 per cent alongside other monetary policy parameters to allow previous policy actions to permeate the economy.
While expecting an hawkish tone in the light of the tightening of monetary policy by global central banks and the election spending, analysts at Cordros said, “We expect the Committee to maintain a cautious outlook on the domestic growth pace given the spillover impact of an impending global growth slowdown on the domestic economy amidst supply-side driven domestic inflationary pressures.
“Since the last MPC meeting in May, global central banks have intensified their interest rate hiking cycles to contain the stubbornly high inflationary pressures. Indeed, the Federal Open Market Committee (FOMC) raised the federal funds rate by 75bps at the June policy meeting – the largest hike since 1994.
“We believe the hawkish chorus among global central banks’ will be a major theme of discussion at this meeting, given that tighter global financing conditions result in capital flow reversals from emerging economies like Nigeria. Nonetheless, we think the Committee will take solace in the CBN’s capital control measures and the last hike in the MPR to mitigate the exodus of FPIs from the economy.
“Dollar shortages persisted since the last policy meeting on 24 May, given limited foreign exchange supply at the official channels amidst increased forex demand underpinned by summer travels and political activities. Accordingly, we understand that travellers and manufacturers have continued to recourse to the parallel market as most of their forex needs remain unmet at the official windows.
“Consequently, since the last policy meeting, the local currency depreciated by 1.3 per cent apiece to N424.63 and N617 to the dollar at the IEW and parallel, respectively, as of 14 July. Meanwhile, inflows to the Investors and Exporters Window (IEW) improved as the CBN’s non-oil export proceeds repatriation rebate scheme appears to be bearing fruit.
“On balance, we expect the gross forex reserves at current levels to comfort the Committee that it has enough liquidity to maintain periodic forex intervention, albeit at a pace substantially below pre-pandemic levels.”
Meanwhile the CBN governor, Godwin Emefiele had, at the weekend, stated that the MPC is geared to churn out new ideas and policies that would align the monetary policies with the latest dynamics of the global economy.
Emefiele had stated this at the opening of a retreat for MPC members which is convened to discuss ‘Monetary Policy Implementation in a Digitally evolving Developing Economy’. He noted that there is urgent need to rethink financial system regulation, supervision and monetary policy implementation.
“While the innovations come with lot of risks and uncertainties for the sectors, they also have many benefits for positive economic transformation and particularly, financial inclusion which has been the principal catalyst for inclusive growth, poverty reduction and employment generation.
“We have seen what is happening in the global economy and we are going to addressing those issues and see if we chart a new course and what next we should do in the coming years to see to it that we provide monetary policy direction for the Nigerian economy.
“So, we would be expecting new ideas, new strategies on monetary policy in a digitised global economy, what are going to be doing in light of the challenges posed by fintech, cryptocurrencies agents globally and what direction to take. I can assure you that after this meeting, we would see a new improved monetary policy and a new and improved CBN that would provide direction for monetary policy in Nigeria,” he stated.
