Retention of MPR’ll support attainment of domestic economic growth- analysts

Financial analysts have said that the Monetary Policy Committee decision to retain policy rate will support the attainment of domestic economic growth projection of 1.75 per cent.

The growth rate had slowed down to 1.50 per cent in second quarter of this year from 1.95 per cent in the first quarter of 2018.

The committee last week retained Monetary Policy Rate at 14 per cent, Cash Reserve Ratio 22.5 per cent, Liquidity Ratio retained at 30 per cent and Asymmetric band retained at +200 basis points and–500 basis points around MPR.

Analysts from Cowry Assets management expressed optimism that inflationary threats from end of year spending activities from election campaigns and Christmas festivities as well as expected Foreign Portfolio Investment outflows in response to expected increases in US Fed rate could be tamed using Open Market Operation (OMO).

They expected a status quo policy pronouncement when next the MPC meets in January 2019–despite upside risk to inflation from expected increase in political spending as such risk should be short-lived.

Analysts from Afriinvest on the other hand observed that the tone of the Apex Bank’s policy announcements slightly softened and tilted towards growth rather than the usual focus on stable capital flows and price stability.
On a related note, the committee expressed worry about the slow expansion in credit to the private sector which analysts believe is reflected in soft spending by consumers and businesses.

Explaining further the group said “Given that low credit to the real sector led to the recently proposed dynamic CRR framework and the corporate bond repurchase programme, we are surprised that there was no statement on the progress so far.”

But In the short-term, “the committee emphasised that the risks to the Nigerian economy remain closely related to global and domestic events. Globally, high interest rates in advanced economies, lower oil prices and the trade war between the US and China which could prompt slower growth are prominent concerns.

Domestically, low fiscal buffers, elevated insecurity and the lack of progress in resolving structural deficiencies are confounding issues.

Overall, analysts align with the stance of the MPC meeting, but worry that there could be a resurgence in Forex demand management; this can potentially restrict imports, fuel inflationary pressures as goods become scarce and ultimately constrain growth.

Analysts stated that going forward CBN expected to continue to manage system liquidity to guide desired rates in the fixed income market. While this may be insufficient to stem capital flow reversals ahead of the elections, they said the recently issued $2.8 billion Eurobonds provide additional buffers for the CBN to sustain forex sales and, in turn, exchange rate stability in the near-term.

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