Analysts at asset management and investment banking group- FSDH, on Friday noted the need for members of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) to ease rates at its meeting holding on May 21 and 22, 2018.
This is despite the personal comments of MPC members where they separately drew attention to factors that could delay monetary easing for now, including the non-passage of the 2018 Appropriation Bill by the National Assembly (the budget, padded by about N508bn, was passed by both chambers of NASS on Thursday, awaiting Presidential assent), anticipated huge spending ahead of the 2019 general elections and the rising non-performing loan of banks, among others. (READ).
The benchmark Monetary Policy Rate (MPR) has remained at 14% since July 2016, even as analysts point to the fact that inflation rate at 12.48% in April according to data by the National Bureau of Statistics (NBS) as another compelling reason to ease rates.
According to a report by FSDH, policy easing is appropriate at this time to “boost credit creation and stimulate economic growth.
“FSDH Research considers the Nigerian economy has recorded a reasonable level of price stability that should encourage the MPC to now concentrate on growth in the economy.
“We observe that there has not been any linkage between the MPR and the yields on fixed income securities since July 2016, as the MPR has remained at 14%. We also note that certain lending rates in the economy are predicated on the MPR,” the report stressed.
The monetary policy stance of the CBN, it noted further is predicated on achieving price stability in domestic prices and foreign exchange rate, an objective that has been responsible for the tight monetary policy stance.
The report noted the improved macroeconomic environment in Nigeria’s economy, which has strengthened foreign exchange inflows and boosted external reserves by 23.42% on a 30-Day Moving Average, from year start to US$47.85bn as at 11 May 2018. It expressed hope that the positive domestic and external environment to further lead to external reserves accretion in the short-term and then provide further stability for FX rate.
Another reason that supports the call for some easing by the MPC, FSDH added, is the sharp decline in yields on fixed income securities in Nigeria over the last few months, despite the hold in the MPR. The decline was driven mainly by the strategy of the Debt Management Office (DMO) to restructure the Federal Government’s domestic debt portfolio in favour of long-term debt, the drop in the inflation rate and other positive developments within the macroeconomic environment. Yields on the 90-Day, 182-Day and 364-Day Nigerian Treasury Bills (NTBs) primary auction closed at 10.256%, 11.080% and 11.978% on 16 May, 2018 from 12.96%, 14.96% and 16.68% respectively in January 2018.
“FSDH Research believes the recent developments in the Nigerian economy and the short-term outlook of the economy favour monetary policy easing, which is required to stimulate economic growth and credit creation. We believe this easing may come in the form of an adjustment to the Monetary Policy Rate (MPR) or an adjustment to the Cash Reserve Requirement (CRR).
At its first meeting this year in April, the MPC maintained the MPR at 14% with the asymmetric corridor at +200 and -500 basis points around the MPR, while retaining the CRR and Liquidity Ratio (LR) at 22.50% and 30% respectively.