Restrictive monetary policy stance to persist till H2 2019
AS THE WEEK OPENS WITH the Central Bank of Nigeria (CBN) holding its first monetary policy meeting for the year, businesses looking to acquire cheaper loanable funds may have to wait till the second half of the year for their wishes to come true.
This is because, market analysts predicted that the tightening stance of Nigeria’s monetary policy committee (MPC) will not be loosening up until later in the year or by year end.
The MPC has retained Monetary Policy Rate (MPR) at 14.0 percent with a corridor of +2%/-5% since July 2016, a move local businesses have adjudged to be cruel as it restrains them from obtaining loans at single or lower digit rates for rapid business expansion.
Cash Reserve Ratio (CRR) at 22.5 percent and liquidity ratio (LR) at 30.0 percent has also been stable over the last two years with criticisms of the CRR seen to have sterilised trillions of naira in loanable bank funds sitting idle with the apex bank, thereby making business unbearable as the cash reserve policy does not ensure anything is earned on the funds set aside but rather deplete the bank’s loanable funds.
Despite these worrying factors, the guidance offered by the apex bank so far is that the restrictive monetary policy stance will remain in place for the early part of 2019, according to Afrinvest analysts in their latest report on the outlook of the economy titled “On the Precipice.”
According to them, the stance is due to expected inflationary pressures from food shortages, fiscal spending and possible implementation of a new minimum wage of N30,000/month.
“In our view, food shortages and a devaluation in exchange rate are the biggest threats to inflation, as well as pricing adjustments for electricity and petrol.”
Also on the outcome of the MPC meeting scheduled to hold Monday, January 21 and Tuesday, January 22, 2019, Damilola Akinbami, head research at Financial Derivatives Company in a monitored televised interview stated that a tighter monetary approach is expected for many reasons one of which is the interest of foreign investors.
Akinbami was of the opinion that one of the reasons why the CBN will think about maintaining its tightening approach, is to attract capital flows.
Although investors are weary of the investment environment in the country, she said “when the dust settles, investors will definitely look at the Nigerian economy for a come back, but if they perceive any form of regulatory highhandedness in the market, that could make them stall.
We should however bear in mind that investors are not looking at the rate, they are also looking at the risks premium and with developing economies tightening rates further, there is a challenge that will present itself,” she cautioned.
On the normalisation of FPI outflows following the elections, Akinbami pointed out that several factors asides the electioneering risks are being taken into consideration by foreign investors, some of which the CBN also has in mind hence a likely tightening of MPR.
She added that the CBN’s focus is price stability, exchange rate stability and also building its external reserves. According to her, the CBN has prioritised exchange rate stability over building its external reserves, this stance is tricky as she feels oil revenues which are currently depleting, will make it very difficult for the CBN to build its reserves.
“In a situation where the reserves are not available to support the currency, that pressure which we expect to happen will filter through, so in line with other analysts, we could definitely see the currency weaken further,” she said while speaking on the widely acclaimed forecast of a naira depreciation in 2019.
The CBN said this week’s meeting scheduled to take at the MPC meeting room, 11th Floor, Wing C, CBN Corporate Headquarters, Abuja will be the 265th.
The Monday meeting will commence by 10am, the Tuesday event will start for 8am, with the CBN Governor scheduled to address the media on outcome of the deliberations, Tuesday afternoon.