The Nigerian Monetary Policy Committee (MPC) in its fifth 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. So far this year, the committee had voted to increase Cash Reserve Ratio by 500bps in its January meeting, reduced the MPR by 100bps in its May meeting and maintained status-quo, leaving the monetary policy rates and other parameters unchanged, in the July MPC Meeting.
Since the July-2020 meeting, most of the concerns remained unchanged or have deteriorated. In the domestic market, inflation continues to track higher, and printed 13.2% in Aug-2020- the highest in 2 months, pressure on the local unit and reserves remain unabated, amid widening trade deficit and currency market illiquidity despite the resumption of FX sale to BDCs by the CBN.
Furthermore, Q2-2020 GDP numbers showed a 6.1% decline, the largest contraction in three decades, signalling that the economy will slip into a recession by Q3-2020 amid the coronavirus outbreak and the ensuing lockdown. Yet, oil prices firmed at c.$40/ b even as monetary policy authorities around the world maintained an accommodative stance to spur growth.
Despite the recent policy reforms observed in the energy sector, (Subsidy removal, electricity tariff adjustment), we doubt that The Committee will tweak any of the policy variables.
However, we are of the view that the MPC will have to brainstorm on the appropriate policy dosage to apply in other to restore GDP Growth, pullback inflation to below 12%, resolve the dislocation between market rate of interest and a real return to attract foreign investment as well as stimulate domestic savings, and lastly, fix the currency.
UNITED CAPITAL RESEARCH