Yesterday, the Monetary Policy Committee (MPC) held its last meeting for the year. The recent meeting occurs in light of the recently published GDP numbers from the National Bureau of Statistics (NBS), which showed that Nigeria’s economic growth slowed -3.6% y/y in Q3-2020. The committee is expected to discuss, among other topics, developments in the global and domestic economies since its last sitting in order to decide on the next monetary policy action. Year to date, the committee has taken a broadly accommodative stance, voting to reduce the MPR twice; in its May meeting and its September meeting, following a CRR hike in the January meeting.
Going into the meeting, a myriad of factors will guide the committee’s decision apart from the now confirmed technical recession. To mention a few, the recent vaccine developments – which gives hopes of a swift recovery and appreciation in Brent Crude price (now $45.1/b). The recent rally and increased activities in the equities market, buoyant financial system liquidity, low fixed-income yields coupled with an upward trend of inflation (driven by rising food prices). Also, the pressure on the foreign exchange, especially at the parallel market segment, will be in contention amid surging forex demand widening divergence. Lastly, the surge in domestic sector and private sector credit will also play a crucial role in the decision making progress.
Putting all the factors above into consideration, we expect the Monetary Policy Committee (MPC) to most probably leave all monetary variables unchanged in order to further observe the effect of the last decision to cut rates by 100bps which has yielded some desired results. However, we do not overrule a vote of an additional 50bps cut in a bid to signal the urgent need to recalibrate the economy towards a path of positive growth, as we believe that a rate hike might contradict any growth ambitions.