With inflation rate down at 9.3 per cent , experts are predicting that the Monetary Policy Committee of the Central Bank of Nigeria may keep the benchmark lending rate at 8.75 per cent at its meeting on Monday (today) and Tuesday, Ademola Alawiye reports

There are indications that the Monetary Policy Committee may keep the benchmark lending rate at 8.75 per cent at its next meeting holding on Monday (today) and Tuesday (tomorrow), following its effect on inflation rate.

Analysts, who spoke in separate interviews with our correspondent on Friday, said the MPC would likely keep the rate at the current level to see the impact of the previous increases.

According to them, the fact that the Central Bank of Nigeria has consistently tightened monetary policy calls for a pause at this period so as to check the results of previous policy actions.

The CBN had at the end of its MPC meeting in Abuja in July decided to tighten the monetary policy and increase the Monetary Policy Rate by 75 basis points to 8.75 per cent from the previous eight per cent.

Eight members of the committee had voted for an increase of the MPR by 75 basis points while one member favoured an adjustment by 50 basis points. Three other members voted to retain the MPR at eight per cent.

At the end of the meeting, the CBN also decided to maintain the corridor at +/- 200 basis points around the MPR.

Addressing journalists in Abuja at the end of the meeting, the CBN Governor, Mr. Lamido Sanusi, had said the consensus of the members of the committee was that the outlook was uncertain due to dark clouds on the international horizon and the rising spectra of a structural fiscal deficit.

Sanusi said, “The MPR was raised due to uncertainty over the ‘dark clouds’ on the international landscape and the rising spectra of structural fiscal deficit including likely increase in liquidity occasioned by the implementation of N18, 000 new minimum wage for workers, the injection of funds by the Asset Management Corporation of Nigeria as well as N1.317tn distributed for the monthly Federal Accounts Allocation Committee in July.”

The Managing Director, Financial Derivatives Company Limited, Mr. Bismark Rewane, said that the MPC would likely hold rates at the next meeting to maintain monetary stability.

“We will likely see them holding the rate this time around. The uncertain global outlook may as well make the CBN wary of tightening too much and too fast. There is need to tread cautiously, there are many reasons to be careful.”

On the effects of previous tightening, Rewane said, “The monetary authority had done well previously. However, the single digit inflation recorded is not only as a result of the tightening but it has helped; it is a contributory factor. There are many factors responsible for the decreased inflation rate.”

The Head of Research, Africa, Standard Chartered Group, Ms Razia Khan, said a pause should be introduced now, but it should not be seen as the end of the tightening cycle.

“While there will be a focus on the latest inflation rate, any decision of the CBN should be forward looking. It’s not so much of past inflation, as it is the outlook for inflation that should matter. Near term, we would, however, expect a pause from the CBN, although the risks are finely balanced because we expect this still to be followed by more tightening in time.

“The fact that the CBN has already been tightening aggressively and will want to give it some time to see the impact of that earlier tightening favours a pause at this meeting.”

Khan added that uncertain global outlook would also make the CBN wary of tightening too much.

She said, “What if oil prices were to decline on a new, global shock? There are good reasons for them to play things more cautiously.”

Khan added, “Even though “we see a pause now, there are good reasons to anticipate more tightening later.”

Khan said, “Given how things play out, if fiscal policy is still too expansionary come November, there would be reasons to resume tightening. Also, excessive liquidity is still pressuring the foreign exchange rate evidently.

“The solution may be more tightening. By November, we will have a better sense of the banking sector recapitalisation process, and the likely boost to liquidity from AMCON’s activities. Hence, more tightening may be needed,” she added.

Managing Director, Sotice Investment Company Limited, and consulting economist, Mr. Adedayo Toluwase, said the decision of the committee would depend on the developments in the money market. He, however, pointed out that all indications showed that the MPC would keep the lending rates unchanged.

He said, “All signs show that the benchmark lending rate will be maintained at 8.75 per cent next week due to its effect on inflation rate and also to encourage credit creation in the real sector.

“I expect the MPC to reduce the asymmetric corridor around the monetary policy rate so that the CBN’s effective lending rate can remain at the current level. If this is done, bond prices will rise and cause yields to fall from the current high level and also encourage credit creation to the real sector of the economy.”

The MPC, which has operational independence in setting interest rates in the country, had increased the benchmark interest rate four times this year.

The benchmark interest was raised from 6.5 per cent in January to 7.5 per cent in March. It was also increased from 7.5 per cent to eight per cent in May and to 8.75 per cent at the July meeting.

Following successive hikes in the MPR, the inflation rate had dropped significantly to 9.3 per cent year-on-year in August, the lowest so far in three years.

Source: Punch