July 27, 2021/United Capital Research
The Monetary Policy Committee (MPC) is scheduled to hold its fourth meeting of the year on 26th and 27th July 2021. The committee is expected to discuss, among other topics, developments in the global and domestic economies since its last sitting to decide the next monetary policy action suitable to achieve the committee’s objectives as the economy continues its path to full recovery.
Going into this meeting, we expect a myriad of factors will guide the committee’s decision. First, we expect the committee to consider sustained positive soundbites on global vaccination progress which continues to support optimism around global and domestic economic recovery. That said, we highlight the MPC would also consider the increasing risk of the spread of the delta variant. Also, inflation figures for the month of June released by NBS showed sustained disinflation as headline inflation moderated to 17.75% y/y. Other parameters include financial system liquidity, the yield environment and pressure on FX particularly at the parallel market.
Putting all the factors above into consideration, we think the MPC will be reluctant to ease monetary policy, despite the positive implication for economic recovery, as it could trigger inflationary pressures and possible weakness in the Naira. On the other side of the spectrum, we think the MPC will be unwilling to take a hawkish position on monetary policy as it could stall the recovery process as well as raise the cost of liquidity mop-ups and government’s borrowing cost. Thus, we expect the MPC to hold all monetary policy variables, while they retain a bias for sustaining use of unorthodox measures to achieve their conflicting objectives.
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