CBN holds on to forex gains, growth expectations as MPC meets
As the Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN) begins today, there are expectations that the policymakers will retain previous decisions to ensure deepening of effects.
The fourth meeting of the year is coming on the backdrop of recent happenings in the global and domestic space in the last two months, particularly remarkable improvement in domestic economic indices although against mixed signals from global front.
There are concerns that global growth expectations and receding populist threats, though have calmed the global markets, but yet to translate into positives for commodity prices, like crude oil and bullion assets, which have underperformed since the turn of the year.
Specifically, oil prices, which benchmarks Nigeria’s economic performance have been bearish since the last MPC meeting, with Brent crude declining from $54.13/per barrel on 23rd May to a six-month low of $44.80/per barrel in June before rebounding to US$48.84/ per barrel last week.
Given the increasing difficulty in rebalancing the oil market, with Shale production volumes expanding and U.S. inventory levels remaining at historical high, talks have begun to include Nigeria and Libya in OPEC/non-OPEC deal to cap production volumes.
However, manufacturing and non-manufacturing indices have already indicated slow but steady recovery in economic activities as the average level for the second quarter of 2017 settled at 52.2 and 52.1 points respectively.
The external sector pressures have also eased with banks now increasing daily limits on foreign exchange transactions following the CBN’s increased interventions as well as the launch of the Investors’ and Exporters’ (I&E) window.
Chief Executive Officer of Cowry Asset Management Limited, Johnson Chukwu, said it would be inconsistency if the policymakers decide to tamper with rates at the moment.
“Granted, the economy is recovering slowly. At the moment, it is neither supportive to raise or cut rates. It is a time to allow policy deepening, just as we are at the fringes of recovery.
“The liquidity is already tightened and recession needs increased liquidity to rebound. Sure, leaving everything this way will mean that real sector funding and interbank lending will remain high. But this would sustain the economy until the economy dynamics set in, maybe, government will succeed in settling the contractors,” he said.
For the Managing Director of Afrinvest Securities Limited, Ayodeji Eboh, an analysis of the economy by his company has shown that any call from the private sector and government officials to ease monetary policy, given the improvements that have been recorded in economic leading indicators, will likely be ignored on the ground of attracting foreign investors and prevent speculations on the foreign exchange market.
“We hold the view that whilst the economy is at a turning point for a positive growth trajectory, monetary policy needs to be deployed with focus which may require taking painful but critical decisions,” he said.
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