CBN to Hold Rates after 255th MPC Meeting—FSDH

By Dipo Olowookere

A latest report from FSDH Research has predicted that the Central Bank of Nigeria (CBN) will maintain rates at the current levels when it holds its 255th Monetary Policy Committee (MPC) meeting on Monday and Tuesday in Abuja.

At the last MPC meeting in January 2017, the apex bank maintained the Monetary Policy Rate (MPR) at 14 percent, with the asymmetric corridor at +200 basis points and -700 basis points.

The CBN also retained the Cash Reserve Requirement (CRR) and Liquidity Ratio (LR) at 22.50 percent and 30 percent respectively.

In the report obtained by Business Post, FSDH Research noted that, “Although both the inflation rate and foreign exchange rate have shown signs of improvement in the last few weeks, a change in monetary policy might be too soon.”

FSDH Research, in the report titled ‘MPC Meeting: Considerations and Policy Options’, noted that, “We believe more time is required before a monetary policy change can be effective under the current situation.”

Last week, the Federal Open Market Committee (FOMC) of the U.S Federal Reserve (The Fed) increased the Federal Funds Rate (The Fund Rate) at its March 2017 meeting.

The Fed increased the Fed Rate by 0.25 percent to a range of 0.75 percent – 1.00 percent, from a range of 0.50 percent – 0.75 percent.

The unemployment rate dropped to 4.7 percent in February 2017 below the 6.5 percent target while the inflation rate increased to 2.7 percent in February 2017 above the 2.0 percent target.

FSDH Research said the expansionary fiscal policy plans of the Trump administration may lead to further rate hike in 2017, adding that the increase in the Fed Rate may increase the Dollar denominated yields and may lead to capital flight from the emerging markets economies.

It stressed that a drop in rate in Nigeria which may lower the yields on the fixed income securities may be counterproductive.

FSDH Research also commented on the Organization of the Petroleum Exporting Countries (OPEC) March 2017 monthly report, which forecast global growth at 3.2 percent in 2017, from 3 percent in 2016.

OPEC said that higher-than-anticipated economic growth may come from the U.S. and the Euro-zone, as well as Japan to some extent.

It said upside potential also exists in the emerging economies of China, India, Brazil and Russia.

At the same time, political and economic uncertainties could hamper the global economy from further and faster improvements, including upcoming elections in major European economies, developments regarding Brexit, and fiscal, monetary and trade policies.

It said the expected growth in the global economy may boost commodity demand, including crude oil, with a positive impact on the value of the Naira.