By Obinna Chima
As the Central Bank of Nigeria’s Monetary Policy Committee (MPC) commences its first meeting in 2019 today, financial market analysts have ruled out the possibility of a cut in interest rate, on the eve of the country’s general election.
The two-day meeting is the 265th of the committee.
At its last meeting in November 2018, the MPC had maintained the Monetary Policy Rate (MPR) at 14 per cent, with the asymmetric corridor at +200 and -500 basis points around the MPR; it also retained the Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) at 22.50 per cent and 30 per cent, respectively. The MPC has kept the policy rates at the current levels since July 2016.
The Group Managing Director of Afrinvest West Africa Limited, Mr. Ike Chioke, while commenting on his expectation from the meeting, said given the “political calendar, I dare say that the MPC would not want to make any changes.”
He added: “They would probably keep all the rates and variables the same and not change it.”
On their part, analysts at FSDH Merchant Bank Limited, in a report, stated that looking at possible policy options open to the MPC members, they would vote to maintain interest rates at the current levels.
It, however, pointed out that “the CBN may continue to use the open market operations to manage liquidity in the banking industry in order to maintain price stability.”
Data from the CBN showed that the growth in key monetary aggregates in Nigeria fell short of the targets set by the CBN for the country.
This development, according to FSDH Merchant Bank, supports the argument for an expansionary monetary policy to boost credit creation.
However, the firm in the report reiterated that the current structural rigidities in the country need to be addressed in order to make lending attractive for banks.
“Therefore, unconventional policies are required to boost credit creation and business expansion to stimulate growth. Measures that remove the risks inherent in the economy will encourage credit expansion and this will support sustainable growth. FSDH Research believes maintaining rates is still advisable. However, we expect the CBN to continue to use the sales of government securities to manage inflation expectation and exchange rate stability.
“FSDH Research observes that the positive impact of the proceeds of the US$2.86 billion on the external reserves is now waning. The external reserves at US$43.10 billion as at 15 January 2019 are estimated to cover about nine months of imports.”