The Central Bank of Nigeria (CBN) held its bi-monthly Monetary Policy Committee meeting today May 28, 2020. Against the 2-day traditional timeline for the event, the meeting was cut short to a day.
Faced with the decision to hold or cut specific metrics, the committee unanimously voted to cut Monetary Policy Rate by 100bps to 12.50% while leaving all other monetary policy metrics unchanged.
- Monetary Policy Rate (MPR) at 12.50%;
- The asymmetric corridor around the MPR at +200/-500bps;
- Cash Reserves Ratio (CRR) at 27.5%; and
- Liquidity Ratio (LR) at 30.0%
We believe the monetary policy committee is towing a path aimed at reducing the potential impact of COVID-19 on overall output growth.
This accommodative policy is in line with the global dovish stance which may not necessarily be ideal for Nigeria’s situation given the breakdown in the transmission mechanism on the monetary policy front.
It is curious that the committee did not provide much guidance on the foreign exchange front as that remains a key pressure point for the Nigerian economy at this time.
In all, we think the impact of this move on the fixed income market would be minimal as the market has not been anchored around the benchmark rate for quite a while. Whether this would be enough to ward off negative growth this year remains to be seen.
The MPC, however, advised the fiscal authorities to maintain its core spending plan, improve on tax generation and work towards the gradual reopening of the economy. The MPC also highlighted the need for a public-private partnership to fund infrastructural development in the country.
The Monetary authority also noted the need to provide cheaper credit to the real sector amid relative stability in the banking sector where Non-Performing Loans have fallen to 6.58% as at April 2020 from 10.95% as at April 2019.
Finally, the MPC stressed on the need for continued interventions in the Manufacturing, Agricultural and Health Sectors.