BY BAMIDELE FAMOOFO
The Monetary Policy Committee of the Central Bank of Nigeria voted to increase the Monetary Policy Rate by 100bps to 14.0 percent after its bi-monthly meeting held on July 18 and 19 in Lagos.
The Committee also voted to retain the Cash Reserve Requirement at 27.5 percent, liquidity ratio at 30.0 percent and asymmetric corridor around the MPR at +100bps/-700bps.
Analysts had predicted that MPC will retain MPR unchanged at 13 percent, suggesting that the MPC is not in a hurry to hike rates further as the CBN remained concerned about the need to ease the government’s finance costs even as external pressures intensify.
Financial experts at Cordros Research however noted that although the MPC had increased the MPR by 150bps at the May policy meeting, there was no commensurate increase in fixed income yields.
“Notably, OMO stop rates and the CBN Special bill rollover rate were unchanged. Besides, bond yields have only increased slightly, while the dearth in system liquidity primarily drove the recent increase in treasury bills rate. That said, at this meeting, we believe the Committee will stress the need to examine the global economy’s health in the near term and how the global central banks would react correspondingly, given that the downside risks to global growth have intensified,” Cordros disclosed.
Contrary to Cordros pre-MPC analysis, it expected the Committee to maintain a cautious outlook on the domestic growth pace given the spillover impact of an impending global growth slowdown on the domestic economy amidst supply-side driven domestic inflationary pressures.
“On balance, we expect the Committee to retain the MPR at 13.0% alongside other monetary policy parameters to allow previous policy actions to permeate the economy.
“We expect the Committee’s tone to be hawkish in the light of the tightening of monetary policy by global central banks and the election spending effect on inflationary pressures,” analysts added.
