Analysts speak on expectations as CBN holds first 2021 MPC meeting
As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) begins its first meeting of 2021 today and expected to come out on Tuesday with the decision on the Monetary Policy Rate (MPR), the first in the new year, analysts have been giving possible outcome of the meeting;
It would be recalled the committee retained the MPC at 11.50 per cent at the last meeting in November, last year.
Analysts at Cordros Group, a major investment banking group, said it expected the apex bank to hold the MPR unchanged.
According to them, although rising inflationary pressures alongside fragilities in the balance of payments present a strong case for monetary tightening, it is rather too early for such a stance given the need to support economic recovery.
They noted that monetary tightening would contradict previous heterodox policies targeted towards improving the flow of credit to the real sector of the economy and prolong the recovery phase.
“Monetary policy tightening will also create severe financial market turbulence and amplify deficit financing pressures for the government. On a balance of factors, we believe the Committee will keep policy rates unchanged and affirm the use of unorthodox measures such as CRR debits, Loan-to-Deposit Ratio (LDR), and direct intervention in employment-stimulating sectors to influence macroeconomic outcomes and ultimately attain macroeconomic stability,” Cordros stated.
United Capital Plc said the direction of quoted stocks will be determined by monetary policy decisions.
United Capital noted that monetary authorities might continue to use monetary policy measures available to salvage their economies from the potential damage of the COVID-19 pandemic, continuing the trend in 2020 when central banks took centre stage to provide emergency support facilities while adopting a broadly loose policy stance in line with global realities.
“In 2021, we expect monetary policy actions to remain broadly accommodative to spur growth and limit the impact of the pandemic from evolving into a W-shaped growth outcome in the face of limited vaccination for Africans as well as fiscal policy vulnerability. We imagine that monetary authorities will further ease or maintain policy rates at current level till second quarter 2021 to allow the economy to recover fully before contemplating tightening from third quarter 2021,” United Capital stated.
Analysts at Financial Derivatives Company (FDC), led by Bismarck Rewane, however, highlighted the possible pressure on the apex bank to adjust its hold-down position and increase benchmark interest rate as inflation surged by its largest rise in eight years to 15.75 per cent.
FDC stated that continuing rise in inflation will be a major issue at the MPC, noting that the apex bank cannot be oblivious to a rate of inflation which is now almost seven per cent above the upper limit of its inflation range of between six and nine per cent.
“It, therefore, may consider tightening before the meeting or symbolically increasing the rates of its special bills, currently at 0.5 per cent per annum,” FDC stated.
