..may retain policy rates
The Central Bank of Nigeria begins its first Monetary Policy Committee (MPC)
meeting in 2021 today, with the apex bank’s policy decision-makers expected to consider its monetary tools and make crucial decisions on benchmark interest and other monetary rates.
The CBN is expected to decide on the Monetary Policy Rates, which was retained at 11.50 per cent at the last meeting in November, last year.
The decisions of the apex bank, which are expected to be announced at the end of the two-day meeting tomorrow, Tuesday, January 26, 2021, are expected to have ripple effects across the markets.
A decision to hold rates may retain the current market trend in favour of equities, but a hike in rates could moderate quoted equities’ rally in favour of fixed-income market.
The MPC traditionally reviews the developments in the domestic and global economies and the state of the financial markets, especially the domestic market, while making possible projections on the outlook as guidance for its decisions.
Cordros Group, a major investment banking group, said it expected the apex bank to hold the MPR unchanged.
According to analysts at Cordros, although rising inflationary pressures alongside fragilities in the balance of payments present a strong case for monetary tightening, it is rather too early for such a stance given the need to support economic recovery.
Analysts noted that monetary tightening would contradict previous heterodox policies targeted towards improving the flow of credit to the real sector of the economy and prolong the recovery phase.
“Monetary policy tightening will also create severe financial market turbulence and amplify deficit financing pressures for the government. On a balance of factors, we believe the Committee will keep policy rates unchanged and affirm the use of unorthodox measures such as CRR debits, Loan-to-Deposit Ratio (LDR), and direct intervention in employment-stimulating sectors to influence macroeconomic outcomes and,” Cordros stated.