Analysts See Rates Unchanged As MPC Meets Monday

Despite CBN’s disposition towards easing stance to boost growth, analysts are insisting that the apex bank will leave benchmark rates unchanged at the next meeting holding Monday, July 22 to Tuesday July 23.

While some analysts favour easing policy mood citing factors such as sustained decrease in inflation rate which moderated to 11.2 percent year-on-year in June 2019 from 11.4 percent in the previous month.

In an emailed report at the weekend, the financial analysts at Lagos-based Afrinvest Nigeria insisted they expected rates to be kept at current levels even though the tone of members of the monetary policy committee might be to support monetary easing.

They also noted that even though the disposition of the Central Bank of Nigeria (CBN) in recent times and monetary easing in the global economy points to rates cut, these might not dictate decisions of members of Monetary Policy Committee (MPC).

The financial experts pointed out, for instance, that global and domestic economic environment have become more supportive of the shift towards looser monetary policy as opposed to tight monetary policy.

They further noted the CBN’s new guidelines compelling commercial banks to expand credit, the most drastic being the minimum floor of 60.0% established for loan to deposit ratio, and the maximum limit on deposits attracting interest at the Standing Deposit Facility window of the CBN which was reduced from N7.5bn to N2.0bn per day.

However, “We do not expect this data to dictate the pace of monetary policy due to monetary easing in the global economy. We believe the CBN would continue its ongoing monetary easing in the fixed income market as higher liquidity levels support continued moderation in yields,” the analysts insist.

Although foreign capital flows into the economy expanded 34.6 percent year-on-year to $8.5bn in Q1 2019, supporting the overall external account, two key data points indicate sustained weakness in Nigeria’s external position.

For instance, the current account deteriorated to -1.0 percent of GDP in Q1:2019 from 1.0 percent in Q4:2018 due mainly to a weakened trade surplus as imports expanded faster than exports, reduction in remittances and sustained weakness in the income and services account.

Notwithstanding, risk averse foreign investors have continued to be attracted to the debt market, but have carefully shunned equities market as well as foreign direct investment in view of perceived tilted risks.