After keeping policy rates unchanged for more than 30-months, the Nigeria Monetary Policy Committee (MPC) reduced the MPR by 50bps in Mar-19 but left other variables such as; Cash Reserve Ratio (CRR) at 22.5%; Liquidity Ratio at 30%; and the Asymmetric Window around the MPR at +200/-500bps unchanged.
In line with the rate cut, the average yield on fixed income instruments moderated 215bps to settle at 12.0% in Jun-1 9. Also, the CBN is getting increasingly accommodative as system liquidity continued to build, measured by OBB and OVN rates which eased, averaging 11.4% in Q2-19 compared to 16.7% in Q1-19.
In H2-1 9, monetary policy outlook depends on the overall policy framework of Governor Emefiele following his reappointment in May-19. As Governor Emefiele head into his 2nd term, we expect him to begin to put the pieces of the 5-year plan together from H2-19. Meanwhile, with the recent moderation in the inflation rate, pro-growth market policies by the CBN, a more accommodative global central banks, we imagine the possibility of a further reduction in some of the key policy rates.
Notably, the CRR of 22.5% may be held unchanged given “the 50% on liquid asset” penalty imposed on banks who fail to meet the minimum L/D ratio of 60% by Sept-1 9. However, with the recent reduction in the maximum remunerable amount banks can place with the CBN, we believe the MPC might widen the spread at the asymmetric corridor, in a bid to further make placements at the windowless attractive. In all, we imagine a 50bps cut in the MPR in H2-19.
United Capital Plc Research (UCR)