The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has moved its meeting formerly scheduled for today and tomorrow till Wednesday and Thursday this week.
Analysts believe the meeting will lead to no surprises as political campaigns for 2019 elections commence in the country.
The MPC meeting earlier scheduled for Monday and Tuesday, 19-20 November had been sifted to Wednesday and Thursday November 21 and 22 2018 as a result of the public holiday declared by the federal government on Tuesday.
The consensus of financial and economic analysts is that as inflation ticks up in a period of electioneering, the apex bank will be unwilling to ease monetary policy neither will it want to tighten as it could further weaken the already weakened economy.
Nigeria is yet to fully recover from the recession it entered in 2016 and growth which recently turned positive has slowed down. Annual Gross Domestic Growth had slowed from 2.11 per cent to 1.5 by the end of the second quarter of 2018.
Analysts believe the CBN may continue to use the Open Market Operations to control liquidity in the system as it strives to curtail the effects of the United Stated Federal Reserve’s rate hike, rising inflation, dwindling foreign reserves as well as a struggling economy.
According to analysts at FSDH Research, the MPC may decide to delay an increase in the monetary policy rate until their January 2019 meeting. The analysts noted that the short-term forecast for the Nigerian economy shows that economic growth remains fragile, as the IMF forecasts a growth rates of 1.9 and 2.3 per cents in 2018 and 2019 respectively.
Noting that appropriate fiscal measures and incentives that will improve the ease of doing business in Nigeria will lay strong foundation for sustainable growth, FSDH analysts said “the economy needs policy stimulus to record a growth rate that is inclusive.
“Nevertheless, monetary policy easing in the form of an interest rate cut may not stimulate growth. There is a need for deliberate fiscal measures and engagements that will promote non-oil exports that attract foreign investment into Nigeria and will guarantee foreign exchange stability
“Rising demand for foreign exchange leading to a consistent decline in the foreign reserves, and rising inflation rate are major justifications for an increase in policy rates. Looking at possible policy options open to the MPC, FSDH Research is of the opinion that members of the MPC will vote to maintain interest rates at the current levels.”
Although the naira has remained stable in the face on appreciating dollar, the external reserves seen to have borne the brunt of it as its 30 days moving average has dipped to $41.6 billion. With the Federal Open Market Committee (FOMC) of the US Federal Reserve expected to raise the Federal Funds Rate (Fed Rate) by 0.2 per cent when it meets next month, FSDH analysts said “an increase in the Fed Rate may further place additional demand pressure on foreign exchange in Nigeria and possibly increase capital flight from emerging markets. Thus, a rate cut in Nigeria is not appropriate under these situations.”
Likewise, analysts at Afrinvest West Africa, noted that although the committee has become increasingly disposed to tightening rates in its last two meetings, “we believe the committee will retain the benchmark rate at 14 per cent to minimise the downside risks to growth and inflation.
“Since the committee last met, inflation has accelerated to 11.3 per cent in September and we expect this to be sustained for the rest of 2018. However, this does not paint the complete picture of inflationary trends. The recent rise in inflation rates mainly reflects a low base as month on month inflation decelerated to 0.8 per cent in September 2018 This slowdown is mainly due to the harvest season which prompted a moderation in food prices. Also, core inflation which policymakers watch keenly has fallen to 9.8 per cent, the lowest since January 2016.”
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