CBN- To Maintain Monetary Policy Stance

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Nigeria’s apex bank, Central Bank of Nigeria (CBN) may maintain its monetary policy stance and leave its guiding rates unchanged in response to modest development in the macroeconomic outlook.

Nearly all leading finance and investment analysts surveyed yesterday were unanimous that the Monetary Policy Committee (MPC) of the apex bank, which begins its two-day crucial decision-making meeting today, would maintain its monetary policy stance and leave all rates unchanged.

The MPC of the CBN, headed by the Governor of the CBN, provides monetary policies and benchmarks, which determine the direction of the financial services sector, and the economy to a large extent.

Analysts agreed that recent data by the National Bureau of Statistics (NBS), which showed modest growth in gross domestic product (GDP) and continuing reduction in inflation rate, would encourage the apex bank to retain its accommodating policy stance.

The apex bank is expected to leave the Monetary Policy Rate (MPR) at 11.50 per cent with asymmetric corridor of +100-700 basis points, liquidity ratio at 30 per cent and cash reserve ratio (CRR) at 25.50 per cent.

Bismarck Rewane’s Financial Derivatives Company (FDC) stated that MPC would likely maintain status quo as inflation moderates and GDP remains positive, noting that the positive growth in the economy and moderating inflation may persuade the committee to maintain status quo in its policy stance.

Afr-invest Securities stated that modest GDP growth and the tapering inflation rate provide comfort for the CBN to maintain status-quo.

Analysts at Afr-invest Securities noted that notwithstanding macroeconomic headwinds , the positive third quarter 2021 GDP performance, the further moderation in headline inflation rate and favourable external conditions such as the recent increase in Nigeria’s oil production quota to 1.67mbpd from 1.65mbpd sustain retaining the current monetary policy stance.

Analysts added that the stabilization of crude oil prices above $80 per barrel and the surprise extension of dovish monetary policy stance in the United States would provide comfort for the CBN to maintain status-quo.

Analysts at Cordros Securities noted that while there could be mixed reactions from the committee about developments in the global and domestic macroeconomic landscape, the accommodating monetary stance still required for output growth.

“On the domestic front, headline inflation moderated for the seventh consecutive month in October amid lingering security challenges. Interestingly, survey results indicate that currency pressures at the parallel market are beginning to dissipate, a stark contrast to the last MPC meeting in September, as speculative activities seem to be abating. On the external front, global systemically important banks have come under increased spotlight following surging inflation, which has prompted fears that the commencement of the tightening cycle may be brought forward than initially expected,” Cordros Securities stated.

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They however expected the committee to reduce its dovish tone in the light of the growing shift to a hawkish monetary stance by global central bankers amidst risk factors that could reverse the downtrend in domestic inflation.

According to the NBS, Nigeria’s real GDP grew 4.0 per cent in third quarter 2021, the fourth successive quarterly growth since exiting the pandemic-induced recession of 2020. The non-oil sector continued to power Nigeria’s recovery with its fourth quarter of successive growth of 5.4 per cent. However, the lackluster performance of the oil sector GDP extended to the sixth successive quarter, making it the longest contraction since 2015 and 2016. The sector contracted 10.7 per cent in third quarter 2021 relative to 13.9 per cent recorded in third quarter 2020.

The NBS also reported that the headline inflation rate moderated for the seventh consecutive month to 16.0 per cent in October 2021. The moderation in headline inflation rate was jointly due to a 123 basis points and 51 basis points decline in food and core inflation rates to 18.3 per cent and 13.2 per cent, supported largely by a high base-year effect from 2020.

“We think the committee would attribute the slowdown in food prices to the impact of the CBN’s intervention in the agriculture sector and the primary harvest season amidst the infrastructure and security challenges across the country. Against this backdrop, we believe the Committee will feel the need to maintain its monetary policy stance to allow its interventions to support growth in food supply and, by extension, drive down prices,” Cordros stated.

“We expect the headline inflation rate to further moderate on a year-on-year basis in November to 15.6 per cent owing to a high base-year effect, although, the protracted insecurity challenges, supply chain bottlenecks, and likely increase in power tariff are potential downside risks to this projection,” Afrinvest stated.

FDC noted that the latest GDP growth brought the average annual growth rate to 3.18 per cent in 2021, which exceeds IMF’s projection of 2.6 per cent and World Bank’s projection of 2.4 per cent.

Analysts however cautioned that Nigeria still needs consistent reforms to achieve sustainable growth as potential GDP growth rate of 8.9 per cent is 5.72 per cent higher than the real GDP growth rate of 3.18 per cent. Analysts attributed the disparity partly to heightened insecurity and currency pressures.

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