MPC to maintain accommodative stance on fragile economic recovery, may retain all policy parameters this week

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to maintain its accommodative monetary stance in the short term to enable economic growth to gain a foothold as well as retain all policy parameters at current levels this week.

According to economic analysts, the Committee members may not vote unanimously as was the case during the last MPC’s meeting, while adding that they expect the voting pattern to tilt in favour of retaining policy parameters as the nation awaits the Q2 2021 GDP performance numbers.

The MPC is expected to hold its fourth meeting of the year today and tomorrow being the 27th of July 2021 and as such the Committee is expected to assess global and domestic macroeconomic and financial market developments and provide forward guidance on the timing of a change in monetary policy stance.

Global economic trends reveal that since the last MPC meeting in May this year, there has been sustained economic recovery in both the U.S. and China – the two biggest economies in the world and two of Nigeria’s major trading partners.

For instance, the US economy added 850,000 jobs to non-farm employment across different sectors in June 2021, translating to an increase of 52.1 per cent over the 559,000 added in the preceding month.

Also, preliminary data from the Chinese National Bureau of Statistics revealed that GDP growth for Q2:2021 came in at a record 12.7 per cent, compared to 7.9 per cent reported in Q1 2021.

This, according to Afrinvest, was aided by the strong recovery in Manufacturing and Trade sectors (up 17 per cent y/y apiece).

Afrinvest further noted that they believe these developments formed a major driver of the improved global demand for crude oil and price stabilization above $65 per barrel since the last MPC meeting while adding that these are positive external development for the MPC to consider, as they boost Nigeria’s hope of improved exports earnings, foreign capital flows, and remittance in Q2 2021 and the subsequent quarters.

“On the home-front, the headline inflation rate has moderated twice since the last MPC in May to 17.8 per cent (June 2021) from 18.1 per cent in April. We believe this provides a boost to the price stabilization objective of the CBN. Broad money supply (M3) and credit to the private sector have both increased by 1.8 per cent and 0.7 per cent respectively from levels last seen at the May MPC meeting to N39.8 trillion and N32.1 trillion,” Afrinvest said, adding:

“We believe this trend supports the MPC’s drive for credit expansion to the real sectors to boost aggregate production and consumption. Also, the domestic equities market All-Share Index has gained 1.1% since the last MPC meeting to print at 38,667.90 index points vs 38,233.68 index points as of May 26, 2021. This is also a boost to the capital market recovery expectation of the MPC and a further signal of economic recovery.”

For his part, Economist at Cordros Capital, Abdulazeez Kuranga, believes that there will be a uniformity in voting patterns among members of the Committee even as it is expected that the Committee will emphasise the need for the apex bank to sustain the use of its administrative measures and secondary “toolboxes”.

Kuranga said: “The Committee will emphasise the need for the apex bank to sustain the use of its administrative measures and secondary “toolbox” such as the Naira for Dollar Scheme, CRR debits, Open Market Operations (OMO) and  direct intervention in the agriculture and manufacturing sectors to achieve the competing goals of price/exchange rate stability and supporting economic recovery.

“Therefore, we expect the Committee to maintain the status quo on all monetary policy parameters at this meeting on a balance of factors. However, we expect the underlying tone of the Committee to be neutral, given the still elevated domestic inflationary pressures and imbalances in the external sector.”

Courtesy: Sun

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