Analysts expect steady policy rates as MPC rounds off Sanusi’s tenure

“For now, with investor interest in Nigeria still healthy, inflation in single digits and budget execution still reportedly benign, more OMOs may be the preferred response to managing excess liquidity. Bigger policy moves would be justified only with a material change to pressure on the FX rate.

As the Monetary Policy Committee (MPC) rounds off its formal meeting under the tenure of the suspended governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, analysts are predicting that all policy rates would remain steady when it announces its decisions today.

The meeting, which would be the last to be chaired by the acting CBN Governor, Dr. Sarah Alade, before the governor-designate, Mr. Godwin Emefiele, takes as the helmsman of the apex bank on when Sanusi’s tenure expires.

However, commenting on the decisions of the committee today, the Regional Head of Research of Standard Chartered Bank, Razia Khan, predicted that CBN may leave all its monetary policy tools unchanged despite suggestions for a slight loosening of the instruments.

She noted that bigger policy moves would be justified only with a material change to pressure on the foreign exchange (FX) rate.

She explained: “We expect the Central Bank of Nigeria (CBN) to hold all policy rates steady when it announces its decisions on Tuesday. Although the NGN (Nigerian naira) has recovered earlier losses following increased portfolio investor interest and rising LHS flows, it remains outside of CBN’s official +/-3 per cent band around a mid-rate of N155.

“Market conditions remain liquid. T-bills have rallied. Inter-bank rates have been persistently close to the lower end of the corridor. Nonetheless, the NGN has appreciated on the parallel market to a reported N168 from N172 vs. the USD, suggesting that there is little immediate need for further tightening.

Meanwhile, a member of the MPC, in a report said that though there have been calls by some economists and operators that the committee should vote for a slight reduction of either the Monetary Policy Rate (MPR) or the Cash Reserve Requirement (CRR), the indication is that the meeting might favour a retention of all the monetary policy tools.

The committee at its last meeting held in March, had decided by a majority vote to hold the MPR at 12 per cent, the CRR on public sector funds at 75 per cent, while the CRR on private sector fund was raised to 15 per cent, from 12 per cent.

The Consumer Price Index (CPI) for the month of April 2014 published last week showed a 7.9 per cent increase in the year-on-year headline index, compared to the 7.8 per cent reported in March.

While the naira has been relatively stable, the accretion of Nigeria’s external reserves has been discouraging.

Nigeria’s external reserves stood at $37.517 billion as at last Thursday, according to data obtained from the central bank’s website.

Another analyst from an investment firm, Afrinvest, disclosed that based on the reduced pressure on the naira and the position of the CPI, the MPC may hold interest rate at the current position.

“In our own view, we don’t expect that there will be any change on the CRR or the MPR. They will maintain status quo,” he said.

He explained that private sector liquidity has not been any threat since the last MPC meeting, saying that further liquidity tightening might not be good for the system.

“If you see the first quarter 2014 results of most of the banks, you will notice that they have been finding it challenging, so they need to maintain the status quo if they don’t want to squeeze out businesses,”

According to the Head, Treasury Department and Trade Solutions, Citibank Nigeria, Mr. Segun Adaramola, the expectation is to keep a lot of the monetary policy tools unchanged.

“At this point in time people expect that because, if you look at what has happened in the economy over the past few months, there have not been major changes apart from the GDP rebasing,” he added.

Adaramola argued that the performance of the naira is a reflection of the productive capacity of the economy. He advised the Federal Government to develop the critical sectors of the economy to grow the economy and support the accretion of the external reserves.