MPC retains brakes on policy rates

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During the past year of declining real output, cost-push inflationary pressure and lacklustre foreign appetite for Naira assets, the Monetary Policy Committee (MPC) adjusted three of its four key parameters in its quest to boost lending and reflate the economy.

After considering several real, monetary, and external factors, the MPC decided to maintain status-quo by holding all parameters constant in its first meeting of the year.

Current Monetary Policy Variables

MPC retains brakes on policy rates brandspurng
Source: NBS, Vetiva Research

Trudging a sticky recovery path

Citing vaccine developments and its impact on oil price recovery and external reserve accretion, the MPC noted that the virus remained a threat to economic recovery given the spike in fatalities and rapid spread of a newer strain of the virus.

Against this backdrop, the Bank cautioned against a second wave of lockdown due to the downside risks it poses to the anticipated recovery.

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Making reference to recent GDP numbers, the Committee noted the milder economic contraction recorded in Q3’20 (-3.62%) compared to Q2’20 (-6.10%) due to the reopening of the economy. However, the lag effects of the lockdown, security challenges and FX challenges are contributory factors to dampened recovery prospects.

While the END SARS protests extended the contraction in manufacturing activity into the month of October, the brief recovery in November could not be sustained into December due to the stifling impact of the FX situation.

With two bearish readings out of three, the manufacturing PMI predicts another quarter of declining industrial output in Q4’20 while the consistently underwhelming services PMI reading portends another bearish outturn for the services sector.

Amid shaky recovery expectations, consumer prices have been surfing the inflationary tide for 5 years, unable to meet the threshold set by the Central Bank. With the recent reforms adopted by fiscal authorities, inflation may continually soar beyond current levels.

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CBN retains MPR at 11.5%, Holds other Key Parameters Constant
Governor, CBN, Godwin Emefiele | www.brandspurng.com

Further increases in the pump price of PMS and electricity tariffs are expected to propel inflation further during the year. However, the Central Bank projects moderation in growth headwinds, as continuous fiscal and monetary intervention measures permeate the economy.

Read Also:  Local Equities Market ASI Rebounds by 2.92% as MPC Cut MPR to 11.50%

MPC to sustain a dovish stance

The CBN’s decision to hike the Cash Reserve Ratio (CRR) in H1’20 amid enforcement of loan-to-deposit ratio (LDR) floors raised several concerns over liquidity in the banking system.

Despite the hostile business climate, huge deductions were made from banks’ reserves for not meeting LDR benchmarks, limiting room for credit expansion. According to Q3’20 GDP numbers, growth in the financial services sector slowed to single-digit levels, partly because of the high base effect.

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At the meeting, the Committee commended the CBN on the industry’s low non-performing loans ratio, which is slightly above the prudential benchmark despite its aggressive credit expansion programme. However, we note the subsisting headwinds in the business environment could have contributed to the slowdown in loan expansion amid restrictive CRR debits.

Given the dismal PMI readings, the CBN may sustain its accommodative stance by keeping rates low and ramping up development finance activities. In addition, further rate cuts could be meted out in future meetings should real output continue its recessionary trend in Q4’20 and Q1’21.

While further rate cuts could support economic recovery, the Bank’s dovish stance could support fiscal policy given the CBN’s role in financing 2020 fiscal deficit, already high debt servicing-to-revenue ratio and the recent passage of the 2021 budget.

With the recent recovery in oil prices, elevated energy costs could drive inflation further from the Central Bank’s target for the sixth consecutive year. While the reopening of the borders should serve as a disinflationary trigger, the continued bans on rice & poultry imports through the land borders would keep inflationary pressures high.

Thus, we expect the CBN to continue its supply-side interventions, accelerate credit access to medium and small-scale enterprises and devise targeted funding strategies to propel economic recovery.

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Latest News

MPC retains brakes on policy rates - Brand Spur

DirectAsia Reveals 5 Factors That Could Influence Your Car Insurance Quotes...

SINGAPORE - Media OutReach - 14 May 2021 - Despite global economic disruptions brought about by the COVID-19 pandemic, car insurance premiums remain steep in Singapore. In a bid to help car owners make informed decisions about their vehicle insurance coverage and ensure accessibility of car insurance, DirectAsia, Singapore's leading online insurer, points out that individuals must first be educated on the determinants of one's policy. The organisation thus puts its support behind car owners by revealing several factors that insurers weigh when pricing out a quote.


MPC retains brakes on policy rates - Brand Spur


1. Vehicle Make and Model

Continental cars, luxury cars and SUVs are typically tied to higher insurance rates. These can be attributed to the importing fees and expensive parts. On the contrary, vehicle owners can anticipate lower insurance rates when owning a car from Japanese or Korean brands.

2. Age of Car

New vehicles are obligated to higher insurance rates as the potential costs of repairing or replacing the car parts are being considered. The rates dip as the car ages and stay at a minimum when the vehicle reaches ten years or more.

3. Experience & Age of Insured


Given that younger drivers have a higher propensity to take risks while driving and pose a greater likelihood of being involved in car accidents, insurers tend to charge higher rates for this age group. This also applies to novice drivers with less than two years of experience behind the wheels. Following that are senior drivers above the age of 65, who may have higher risk of accidents on the roads.

Read Also:  CRR increase may not be an appropriate tool to fight inflation - Experts

4. Vehicle Modifications


Car modification is one of the lesser-known factors that could raise your insurance premium. Despite that, DirectAsia emphasises the importance of declaring any modifications to the insurer or prospective insurer, as non-disclosure may result in future claims being repudiated.

5. Claim History

Lastly, claim history is also added to the equation. If a single claim above $10,000 or two or more claims were made in the past three years, insurers might add on loading fees, which results in a higher base premium.

Conversely, individuals with good driving records and no past claims within one year or more are entitled to no claim discount(NCD). This can go up to 60% at DirectAsia.

Revolutionising Car Insurance in Singapore and Beyond


Besides understanding the rating factors, DirectAsia highlights that finding the right insurer to meet an individual's unique lifestyles, preferences and needs is equally critical.

Reflecting DirectAsia's relentless commitment to delivering unrivalled value are its tailored and transparent policies, complemented with exclusive promotions and optional benefits like NCD Protector Plus, Compensation for Loss of Use and more. Both experienced and inexperienced drivers can expect highly customisable motor insurance policies from the award-winning insurer.

Interested individuals can reach out to DirectAsia for a no-commitment quote here.

About DirectAsia Singapore

DirectAsia, a subsidiary of the Hiscox Group, was launched in Singapore in 2010 with a goal of changing the face of insurance in Asia. The industry leader places its customers at the forefront and seeks to make insurance less complex by offering quick, convenient and transparent online insurance policies that are jargon-free. For more information, please visit: https://www.directasia.com/.


#DirectAsia

MPC retains brakes on policy rates - Brand Spur
- Advertisement -
spot_imgspot_img

Latest News

DirectAsia Reveals 5 Factors That Could Influence Your Car Insurance Quotes in Singapore

SINGAPORE - Media OutReach - 14 May 2021 - Despite global economic disruptions brought about by the COVID-19 pandemic, car insurance premiums remain steep in Singapore. In a bid to help car owners make informed decisions about their vehicle insurance coverage and ensure accessibility of car insurance, DirectAsia, Singapore's leading online insurer, points out that individuals must first be educated on the determinants of one's policy. The organisation thus puts its support behind car owners by revealing several factors that insurers weigh when pricing out a quote.


MPC retains brakes on policy rates - Brand Spur


1. Vehicle Make and Model

Continental cars, luxury cars and SUVs are typically tied to higher insurance rates. These can be attributed to the importing fees and expensive parts. On the contrary, vehicle owners can anticipate lower insurance rates when owning a car from Japanese or Korean brands.

2. Age of Car

New vehicles are obligated to higher insurance rates as the potential costs of repairing or replacing the car parts are being considered. The rates dip as the car ages and stay at a minimum when the vehicle reaches ten years or more.

3. Experience & Age of Insured


Given that younger drivers have a higher propensity to take risks while driving and pose a greater likelihood of being involved in car accidents, insurers tend to charge higher rates for this age group. This also applies to novice drivers with less than two years of experience behind the wheels. Following that are senior drivers above the age of 65, who may have higher risk of accidents on the roads.

4. Vehicle Modifications


Car modification is one of the lesser-known factors that could raise your insurance premium. Despite that, DirectAsia emphasises the importance of declaring any modifications to the insurer or prospective insurer, as non-disclosure may result in future claims being repudiated.

5. Claim History

Lastly, claim history is also added to the equation. If a single claim above $10,000 or two or more claims were made in the past three years, insurers might add on loading fees, which results in a higher base premium.

Conversely, individuals with good driving records and no past claims within one year or more are entitled to no claim discount(NCD). This can go up to 60% at DirectAsia.

Revolutionising Car Insurance in Singapore and Beyond


Besides understanding the rating factors, DirectAsia highlights that finding the right insurer to meet an individual's unique lifestyles, preferences and needs is equally critical.

Reflecting DirectAsia's relentless commitment to delivering unrivalled value are its tailored and transparent policies, complemented with exclusive promotions and optional benefits like NCD Protector Plus, Compensation for Loss of Use and more. Both experienced and inexperienced drivers can expect highly customisable motor insurance policies from the award-winning insurer.

Interested individuals can reach out to DirectAsia for a no-commitment quote here.

About DirectAsia Singapore

DirectAsia, a subsidiary of the Hiscox Group, was launched in Singapore in 2010 with a goal of changing the face of insurance in Asia. The industry leader places its customers at the forefront and seeks to make insurance less complex by offering quick, convenient and transparent online insurance policies that are jargon-free. For more information, please visit: https://www.directasia.com/.


#DirectAsia

MPC retains brakes on policy rates - Brand Spur
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