Odds Against Policy Shift At CBN Monetary Policy Committee Meeting On Monday

Odds Against Policy Shift At CBN Monetary Policy Committee Meeting On Monday

By ThisDay on July 20, 2014
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Central Bank of Nigeria, Tweet meet,
Central Bank headquarters in Abuja, Nigeria

Ahead of tomorrow’s  239th Meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), there is a groundswell of optimism that despite the marginal rise in inflation figure for the month of Jun (CBN)e, the committee is not likely to tamper with the existing monetary policy rate.

At its May meeting, the MPC held monetary policy rate (MPR) at 12 per cent; kept cash reserve ratio (CRR) on public sector deposits at 7.5 per cent and CRR on private sector deposits left at 15 per cent and retained the MPR at +/-200 basis points.
However, economic watchers said the temptations to tinker with the MPR was reinforced by a little rise in the inflation figures for the month of June, which was put at 8.2 per cent as against 8 per cent in May, according to the report released by the National Bureau of Statistics last week. However, they said in actual sense, there was no serious basis for a major shift when members of the committee converge on Abuja tomorrow.

Economic analysts who shared this view banked on current favourable indices on the eve of the crucial meeting to believe the CBN will uphold the existing policy rates.
They argued that although the Consumer Price Index had risen to 8.2 per cent, the period also coincided with sustained growth of the nation’s foreign reserves which hit $38.3billion as at Wednesday.

The new inflation report came less than a week before the CBN Governor, Mr. Godwin Emefiele, chairs his first MPC meeting. All 10 economists surveyed by Bloomberg predict he will keep the benchmark interest rate unchanged at a record 12 per cent, maintaining the bank’s stance since November 2011.

Emefiele said on June 5, two days after he took charge, that he intended to “pursue a gradual reduction in interest rates.”
The rebound of the foreign exchange reserves which is said to have given Nigeria enough cushion in terms of crisis is also being boosted by the current favourable oil prices at international market. For instance, Nigeria’s major crude, Brent oil was sold at $108.3 dollars as at last Wednesday as against $77.5 per barrel benchmark for the 2014 budget.
Analysts contended that given the relative peace in oil production and the significant difference between the oil benchmark and current price level, there is no need to rush into rate change at the MPC meeting tomorrow.

Giving a peep into tomorrow’s meeting, the Lagos-based financial and investment advisory firm, Financial Derivatives Company, said the marginal increase in inflation for the month of June should not lead to any major policy change. The company, however, feared that inflationary trend may continue its upward movement in July.

Writing in its monthly report-FDC Economic Bulletin released last week, the research firm noted that: “This is the first time it (inflation) has risen above 8 per cent in the last 9 months. Although, the year-on-year inflation has been within the CBN band of 6-9 per cent for 2014, the trend in the last quarter has shown that inflation has been creeping upward. There have been three consecutive upward notches that have been caused by the steady rise in the food and core sub-indices of the CPI.

“In July, we are of the opinion that there would be a further increase in the headline inflation rate in spite of the commencement of the harvest season. The projected increase in July will be partly due to the factors that include steady growth in money supply – annualised money supply growth was 5.81 per cent in May; Slow but steady impact of the new automotive policy on transportation cost and disbursement of capital votes under the 2014 budget, and increased security spending.

“We do not believe the inflation rate will lead to a change in the monetary policy stance at the MPC meeting next week.”

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