President, FMDA, Mr. Akinsowon Dawodu
By Obinna Chima
As the Central Bank of Nigeria’s (CBN’s) Monetary Policy Committee (MPC) meeting commences today in Abuja, financial market analysts have forecast that members of the committee will leave the Monetary Policy Rate (MPR) and other interest rates unchanged.
The committee had at its last meeting retained the MPR at 12 per cent; maintained the Cash Reserve Ratio (CRR) at 12 per cent and even the Net Foreign Exchange Open Position (NOP) was left unchanged one per cent.
The MPC has operational independence in the setting of the interest rates in the country. The decision taken by the committee influences the performance of the economy.
Analysts that spoke with THISDAY as well as those who expressed their opinion in reports hinged their forecast on the steady build-up of external reserves and price stability achieved with the tight monetary stance of the apex bank.
President, Financial Market Dealers Association (FMDA), Mr. Akinsowon Dawodu, pointed out that the CBN might leave interest rates unchanged because of its focus on price stability.
“People feel the central bank has to start easing monetary policy and that could happen next year. I know that the governor and the MPC are focused on price stability and they are very convinced of the efficacy of using forex to achieve that. “So they believe that forex stability is very key to price stability and that will always be a factor when they think of easing monetary policy rates because they will definitely consider the possible impact of that on the current exchange rate situation and ultimately on inflation,” Dawodu explained.
Also, although Emerging Markets Strategist, Standard Bank Plc, Mr. Samir Gadio, noted that risks to policy rates were to the downside, he also anticipated that the MPC would keep all its monetary policy tools unchanged.
Gadio added: “Our expectation reflects the more hawkish-than-expected tone of September MPC, which indicated that the policy stance would not be altered before year end. Still, the MPC statement may well turn more dovish this time.
“The strong resilience of the exchange rate mitigates the need for further formal tightening going forward. Overall, the naira has been supported by foreign capital inflows, consistent forex sales from oil companies, favourable domestic sentiment, benign United States dollar demand and still tight liquidity conditions.”
Similarly, analysts at FSDH Securities Limited argued that with the robust external reserves position, comfortable price of bonny light in the international market, relative stability in the value of the naira against the dollar and fiscal prudence suggest that the economy is stabilising. Thus, the firm predicted that the MPC would leave interest rates unchanged.
“However, the expected rise in inflation rate may make the argument to lower the MPR a hard sell. We therefore, expect the MPC to retain the MR at 12 per cent, CRR at 12 per cent and the NOP at one per cent,” FSDH added.
But analysts at the Ecobank Group argued that If the MPC decides to hold, it would be “business as usual” (leading to some fixed income market drift that lacks direction).
“Market behavior and reaction from investors would be a “wait and hold” attitude. Beyond this, it would also send a signal that the relatively tight monetary stance continues despite the slowdown in annual inflation. For domestic investors, holding the rate steady would likely sustain confidence of real returns (albeit moderate) on their naira-denominated assets over short to medium term,” Ecobank Research declared.