Waiting to normalize
While the central bank statement still mentions the possibility of further tightening if deemed necessary, the June meeting marks the end of the central bank’s intermittent, exotic, and liquidity focused tightening cycle. The bank’s reference to ‘expected partial correction in food prices’ hints policymakers’ positioning for some decline in annual headline ahead, probably to be followed by looser liquidity conditions depending on the extent of deceleration. We think the central bank is awaiting the right timing to normalize rates.
The MPC’s unchanged forward guidance and aim to recoup some credibility suggest the central bank could wait until fledgling improvement in headline consumer inflation becomes more visible, which we expect to take place in July. Until then, the central bank looks set to keep monetary conditions tight and the effective rate close to current 12% levels. One thing to watch closely, however, is the recent rise in deposit and loan rates, reflecting enhanced demand emanating from improving confidence as well as the Credit Guarantee Fund. While still remaining short of the extent of tightening delivered in policy rates, any further meaningful rise in the deposit and commercial/consumer cash loans rate could prompt the central bank to slightly ease liquidity conditions soon.