Standard Chartered Bank’s Regional Head of Research (Africa Global Research), Razia Khan, has warned that regardless of weak broad money growth, pressures may build in the future and the Monetary Policy Committee (MPC) has to “remain vigilant, watching emerging risks closely, with a preparedness to act in the future.”
Razia Khan
Khan, an economic and investment analyst, gave the warning after the MPC of the Central Bank of Nigeria (CBN) decided to retain Monetary Policy Rate (MPR) at 12 per cent with Credit Reserve Requirement (CRR) on public sector deposits at 75 per cent and private sector deposits at 15 per cent.
At a meeting held in Abuja on May 19 and 20, the MPC considered, among other factors, the stability in the domestic economy as well as the improved global growth outlook.
Khan explained in an email statement that although inflows into Nigeria are healthy, they could be reversed if global conditions change.
At its meeting in March, the MPC increased CRR on private sector deposits from 12 per cent to 15 per cent but retained MPR at 12 per cent with the interest rate corridor of plus or minus 2 per cent.
It maintained CRR on public sector funds at 75 per cent and Liquidity Ratio (LR) at 30 per cent.
But at its meeting in May, the MPC left all policy rates unchanged, in line with the expectation of analysts.
Khan argued in the statement, entitled “Quick View on Nigeria’s MPC Decision”, that with relative stability restored to the foreign exchange (forex) market and the appreciation of the naira on the parallel market, as well as headline inflation in single digits, there is little reason for the MPC to alter any policy just yet.
However, she cautioned on a number of fronts, pointing out that market conditions are very liquid, calling into question the sustainability of current outcomes.
According to her, core inflation is rising, leaving the CBN rightly concerned about possible erosion of fiscal buffers.
In their own reaction, analysts at Meristerm Securities said: “We see continued stability in the financial markets as the MPC’s decision was largely anticipated by major stakeholders.
“There may, however, be slight gyrations ahead of the next MPC meeting to be chaired by the new CBN governor in July.”
The recent appreciation in forex rate has led to a convergence in official, inter-bank and bureau de change (BDC) rates.
Similarly, analysts at FSDH Company expressed no surprise at the decision of the MPC but recalled that incoming CBN Governor, Godwin Emefiele, says there is no plan to devalue the naira.
“We expect the CBN to maintain the current exchange rate policy in line with its promise,” the analysts stated.
The naira has received respite from persistent demand pressure at the forex market, even as the CBN is committed to defending it.
Exchange rate stood at N155.73 to $1 on May 15, a gain of 0.01 per cent from N155.74 to $1 on March 25, but with a year to date depreciation of 0.02 per cent.
