The Central Bank of Nigeria (CBN) is expected to exercise restraint in monetary policy tightening by keeping the Monetary Policy Rate (MPR) on hold today when the apex bank’s Monetary Policy Committee (MPC) ends its statutory meeting.
The thinking is premised on the fact that the body language of the central government suggests it will apply the brakes in fiscal spending in 2012 financial year. They see the reduction in crude oil benchmark price from $75 per barrel to $70 as an indication that spending might be contained.
Analysts said that, despite the slight uptick in inflation in October, the good news is that core inflation decelerated, just as the money market remained tight.
In an effort to restore foreign exchange market stability, the MPR was raised 275 basis points (bps) to 12 per cent in October and the cash reserve ratio doubled to eight per cent, with the reserve averaging method of computing the CRR abandoned in favour of daily maintenance.
“Despite a slight uptick in October Consumer Price Index (CPI) to 10.5 per cent year-on-year (YoY) from 10.3 per cent previously attributed largely to food prices as core inflation decelerated (YoY) – the policy rate remains positive in real terms. Moreover, core inflation has been falling, and money market liquidity remains tight,” said Razia Khan, Regional Head of Research, Africa Global Research of Standard Chartered Bank, London.
Chief Executive Officer of Financial Derivatives Company Limited, Bismarck Rewane, is also of the opinion the central bank will likely leave the MPR flat.
Khan continued that with CBN comments suggesting that they were encouraged by the more conservative fiscal stance likely to be adopted by government (the benchmark rate for oil in the 2012 budget is likely to be reduced to USD 70/bbl from USSD 75/bbl), there would appear to be fewer reasons to tighten policy, at least until the budget for 2012 is formally published, and spending pressures gauged.