Exchange Rate, Inflation, Energy Prices, Others in Focus as MPC Reconvenes Today

·    Analysts predict hold on monetary policy instruments 

James Emejo in Abuja

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will reconvene today to review developments in the macroeconomic environment.

The high inflationary landscape, Naira’s vulnerability, and rising energy prices would likely dominate deliberations at the meeting.

Even though headline inflation slowed down in July and August, at currently 32.15 per cent, the rate was still considered as disturbing for the economy.

CBN governor, Mr. Olayemi Cardoso, reaffirmed the bank’s determination to target inflation in order achieve price stability.

The Monetary Policy Rate (MPR), the benchmark interest rate, currently at 26.75 per cent, had made borrowing from commercial banks more expensive, particularly for manufacturers. 

The recent easing in inflation offered hope that the apex bank might reconsider its contractionary monetary policy stance to cut interest rate, but new concerns from rising energy costs and Naira’s weakness might dash expectations.

Analysts, who spoke to THISDAY in separate interviews, predicted that the MPC was likely to retain its policy instruments at current levels.

At its last MPC meeting in July, CBN resolved to raise MPR by 50 basis points to 26.75 per cent from 26.25 per cent.

The committee also adjusted the asymmetric corridor around the MPR to +500/-100 from +100/- 300 basis points.

It, however, retained the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) at 45 per cent and Merchant Banks at 14 per cent, as well as kept the Liquidity Ratio (LR) at 30 per cent.

That was the fourth time in a row that the central had raised interest since February.

Analysts advised against further hike, urging the committee to rather hold the policy tools at their current levels.

Nigeria’s first Professor of Capital Market/pioneer President, Capital Market Academics of Nigeria, Professor Uche Uwaleke, told THISDAY that MPC would likely hold the policy rates at their current levels.

Uwaleke said, “This is against the backdrop of the fact that headline inflation moderated in July and August. Also, the US Fed Reserve has started cutting interest rate with the Bank of England and European Central Bank likely to follow suit.

“My advice to the MPC is to completely pause the rate hikes in view of their adverse impact on economic growth and employment in an economy that is struggling with stagflation.

“I think it is time the MPC began to explore unorthodox measures for controlling money supply, as opposed to the current approach of undue reliance on the Monetary Policy Rate.”

Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, also predicted a retention of MPR, while emphasising the need to stimulate the economy. 

Ekechukwu said, “This is arising from the easing off of the inflation rate. Money in circulation appears to be within control, so further tightening will not be necessary. 

“It is time to stimulate and steer up the financial system by loosening the monetary policy. The current fuel price hike, which has created more hardship in the country, should not be worsened by further tightening. 

“So, retaining the current MPR will be plausible and appropriate.”

Similarly, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said judging from current inflation figures, MPC might decide to increase MPR slightly so as to further strengthen the gains of the decision implemented so far.

He, nonetheless, predicted a hold on policy instruments.

Gbolade said, “The inflationary trend eased for two months in a row, however, the effect has not been felt in reality. The economy is not improving even as inflation is reducing.  

“The MPC, judging from inflation figures, may decide to increase MPR slightly so as to further strengthen the gains of present MPC decision so far.

“MPC needs to look at other economic drivers, like the exchange rate, energy, and insecurity before taking decisions to increase the MPR.

“My expectation from the MPC meeting will be to hold the MPR and take further measures at ensuring other factors affecting the economy is addressed.”