The Nigerian Monetary Policy Committee (MPC) in its second meeting in 2020 is currently considering, amongst other things, developments in the global and domestic economy to decide on the next monetary policy action to take, following a surprise 500bps hike in Cash Reserve Requirement (CRR) at its last meeting in Jan-2020.
Since the Jan-2020 meeting, some factors have deteriorated. In the global market, the outbreak of COVID-19 has triggered the collapse of global crude oil prices, thus heightening the risk of a global recession and spurred a global risk-off sentiment. In the domestic market, inflation remains on the ascendency, pressure on the naira and reserves have resurfaced, domestic cases of COVID-19 are on the rise and businesses are beginning to close shop in a bid to curb a further spread of the virus. Also, the fiscal authorities have had to cut spending in line with current realities while the CBN has had to support the economy through targeted liquidity injections. This expansionary CBN policy stance has tilted expectation around the outcome of the MPC to one that complements the CBN’s recent pro-growth policy actions.
Accordingly, we have ruled out a contractionary policy action from the MPC, as this will negate what the apex bank is currently doing to spur growth. However, while we broadly favour an expansionary outcome (ranging from a 50-100bps cut in MPR, a 500bps reduction in Liquidity ratio or CRR to adjustments in the asymmetric corridor), we do not rule out the possibility of the MPC maintaining the current status quo in a bid to further access the impact of the CBN’s recent policy actions.
United Capital Research