Analysts predict steady rates as MPC meets today, tomorrow

As the fifth session of the Monetary Policy Committee (MPC) meeting this year begins today and ending tomorrow, analysts have predicted that there may not be changes in policy rates.

They are, however, unanimous that there is need for more accommodative fiscal and monetary policies alongside structural reforms that will jumpstart growth.

According to the Chief Executive Officer of Time Economics, Dr. Ogho Okiti, “Indeed in the last few meetings, the focus of the Committee has largely been on combating inflation to ensure price stability and attract foreign capital inflows. However, with the economy officially in recession with a bleak short term growth outlook, we expect the focus to firmly shift towards growth.

“Nonetheless, with inflation rising by 17.6 per cent in August and negative real interest rate increasing to – 3.6 per cent consequently, it remains unlikely there will be a cut in the benchmark interest rate as such action could risk eroding the credibility of the MPC.

“Moreover, the pursuit of an expansionary monetary policy in order to support growth, in the face of rising inflation and currency depreciations could prove to be counter-productive, particularly in the absence of complementary fiscal policy measures.” He affirmed.

In view of analysts at Afrinvest Securities Limited, despite positive steps taken to harmonise rates at various segments of the foreign exchange market, the spread between interbank and parallel market rates continues to widen, reflecting shortages at the official market.

It believes this “have implications for asset quality and capital adequacy for banks and consequently financial stability. Non-Performing Loans ratio rose to 10.7 per cent in June 2016 from 4.9 per cent in December 2015 and above the five per cent regulatory threshold.

“Inflation rate has also continued on a steady rise, and this was further confirmed by the recently released August Inflation report, which signalled a rise in Headline Inflation to 17.6 per cent from 17.1 per cent in July, driven by both the food and core sub-indices.” The meeting, it believes, should see how to come out with rates that can ameliorate the current situation.