MPC ‘to Protect Capital Inflow, Keep Rates’

• MPC ‘to Protect Capital Inflow, Keep Rates’

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), which will be meeting today and tomorrow, will not change existing policy rates.

The committee will take measures to ensure that more foreign capital flows into the economy to check capital flow reversals as 2019 elections approach.

A report from the Economic Intelligence Unit, Access Bank Plc, said the committee will retain Monetary Policy Rate (MPR) – benchmark interest rate at 14 per cent, given the anticipated expansionary impact of fiscal spending following the signing of the 2018 budget. The committee will also retain the Cash Reserve Requirement (CRR) at 22.5 per cent; Liquidity Ratio at 30 per cent and maintain the foreign exchange policy, which has brought stability and boosted market liquidity.

Likewise, analysts at Afrinvest Limited, an investment and research firm, said the MPC must keep a delicate balance between growth and price stability, we believe the Committee will maintain status quo on all policy rates in order to avoid upsetting the current economic momentum,: they said, adding:

“Our position is on a balance of factors underscored by careful analysis of sustained positive conditions in global commodity markets alongside emerging market risks and continued disinflation amid steady but weak growth momentum. We further highlight our considerations below.”

They said going by the May 2018 meeting’s minutes, members continue to keenly watch developments in global financial and commodity markets, given the connection to Nigeria’s external position.

“Although no material change has occurred since the last meeting, mixed market sentiments prevail. In the commodity markets, oil prices remained favourable, though slightly lower at $73/barrel compared with a year-to-date high of $80/barrel as OPEC and its allies, parties to the output cut deal, agreed to boost supply by 1mb/d. Saudi Arabia and Russia with excess output capacities are expected to be the biggest gainers from this decision which is anticipated to occasion a slight downward global oil price correction. Nonetheless, we believe conditions will continue to favour Nigeria’s fiscal and external balance positions. In the same vein, foreign capital reversals have continued unabated in emerging markets though with tapered impact on Nigerian assets,” they said.

According to Afrinvest, the stable outlook on oil prices is expected to prop the capacity of the CBN to keep defending the domestic currency with the exchange rate of naira to the greenback stabilising at N305.85/US$1.00.

“Foreign reserves accretion – which slightly moderated 0.6 per cent to $47.4 billion from $47.7 billion as at the May MPC Meeting due to increased forex demand – was supported by improved domestic oil production with daily output at 1.7 million barrel/day,” they added.

The exchange rate continues to hold steady at N360/$ in both the Investors’ and exporters’ FX window and parallel markets, supported by stable foreign reserves that have sustained CBN’s intervention amid the exit of portfolio investors.