March 26, 2019/Cordros Report

With its two-day policy meeting set to conclude today, the monetary policy committee (MPC) clearly faces a somewhat different global and domestic macroeconomic milieu relative to its last policy meeting in January.

The remarkably patchy global growth outlook has forced a number of central banks to change policy course, with any possible rate hikes across the developed market now hanging by the slimmest thread. At home, while economic growth has improved slightly, the still weak oil GDP has certainly put a spanner in the works. In fact, composite PMI reading, – though still well above the expansionary mark – moderated in February (see figure 3), presaging some softness even in the non-oil GDP, and thus, foretelling a sluggish overall growth outlook. 

That said, having enunciated its plan to continue its contractionary policy in the near term, the recent surge in foreign portfolio inflows, still stable FX market, and improvements in headline inflation, should have ordinarily ignited an accommodative policy stance. Nevertheless, we expect the MPC to remain cautiously optimistic in a bid to consolidate on currency gains thus far. To add, since the portfolio inflows witnessed have been somewhat biased towards fixed income, we expect the apex bank to leave rates attractive to ensure continued FPI inflows. Further out, given (1) the still shaky crude oil price outlook, (2) elevated maturity profile in the latter part of the year (see figure 6) and its implication on the naira, and (3) perceived upside risk to inflation, we see lower chances of a rate cut over the rest of the year.

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