The Nigerian Monetary Policy Committee (MPC) will conclude its final meeting for 2019 today (26/1 1/1 9). The MPC will consider, among other things, developments in the global and domestic economy to decide on the next monetary policy action to take in its bid to boost real sector credit growth and accelerate GDP growth or check rising inflationary
pressure in the local economy.
In our view, top on the list of issues that the MPC will struggle to resolve to include: Border closure and its impact on food prices as well as headline inflation rate; the impact of the CBN’s unconventional policy stance which restricts OMO sales to Banks and FPIs alone as well a s the 65% minimum LDR for Banks on market rates; the implication of negative real interest rate environment on investment; and the sustained diminution of the reserves in the face of q-o-q decline in capital importation.
Certainty, investors will be on the lookout for the outcome of the meeting to understand the direction of yields on T-bills which has from an average of 1 4.0 8% to 1 1.1 5% since the last MPC. Notably, market the expectation for the headline inflation rate is northwards while system liquidity is anticipated to surge in December. That said, the MPC will be
caught between a decision to HOLD or EASE policy stance. In our view, further easing could drive market rates lower and worsen capital outflow in the face of dwindling external reserves. As such, we think the MPC will most likely DO NOTHING, backing the CBN’s
recent unorthodox policy actions, despite inflationary pressure and dwindling reserves, while hoping that the border issue will be resolved soon.
United Capital Plc Research
