In the wake of MPC rate retention, CBN to intensify OMO auction to check liquidity

CONSIDER ING THE VOLA TILE global financial market, and the paramount local exchange rate and liquidity rate, the CBN last week chose to hold rates stable, experts have suggested that the CBN intends to battle festive spending by intensifying its OMO auction.

Conducting weekly OMO auctions has been the theme throughout the year, and in recent weeks we have seen the CBN conduct two auctions in one week just to tackle the buoyant liquidity rate.

The outcome of the MPC meeting would not have been a surprise to most people has it was expected, but given the volatility of inflation rate, many also suspected that a rate hike was on the cards.

Mustafa Wahab, analysts at Cordros Capital said that the dip in inflation must have surprised the committee like it surprised everyone and since they had not shown conformity, the CBN decided to retain and not hike the rates.

Wahab said, “The decision wasn’t much of a surprise, but the surprise was the marginal drop in inflation in a period where every- one was so sure that inflation will increase, with some people even quoting figures like 13 percent. That must have dropped some uncertainty in the mind of the committee and have such they decided to retain MPR at 14 percent.

Going forward, Wahab said he expects the CBN will be more observant and their actions will be spelt by the activities of the economy, he said, “I am pretty sure that the CBN will be more watchful, given that the risks of increased inflationary pressure are still a thing of concern, already they have been conducting multiple auctions just to control liquidity, so I will expect more of that.”

Analysts at Cowry Capital voiced similar opinions to that of Mustafa Wahab and also went further to state that they do not expect any MPR changes even in January 2019,

The market analysts said, “We believe that the inflationary threats from Christmas spending and FPI outflows could be tamed using OMO. We also expect a status quo policy pronouncement when next the MPC meets in January 2019, despite upside risk to inflation from the expected increase in political spending as such risk should be short-lived.”