CBN to evaluate Naira performance as MPC kicks off today

LATEST UPDATE: CBN to evaluate Naira performance as MPC kicks off today

BY BLAISE UDUNZE

As the last Monetary Policy Committee meeting for the year commences today, finan­cial experts have projected that issues such as threat to revenue accretion, pressure on the Naira at the foreign exchange market and declin­ing reserves would top the agenda.

They stated that the meeting would hold the Net Trading Position Limit at one per cent to further help shore up the value of the Naira, leaving Li­quidity Ratio unchanged at 30 per cent.

According to them, criti­cal highlights of the meeting are likely going to be the re­tention of Monetary Policy Rate(MPR) at 12 per cent, leaving the +/-200 basis points corridor.

An investment research firm, Afrinvest, stated that as the MPC convenes for the last time for the year, the policy makers would be expected to design strategies that deliver short, medium and long term solutions to the deteriorating macroeconomic outlook.

Ayodele Ebo of Afrinvest said that the benign core infla­tion, which provides a basis for the CBN’s monetary policy, will offer some succour to MPC members at the next meeting.

“Nevertheless, we believe the CBN may choose to opt for monetary tightening by increasing the Cash Reserve Requirement(CRR) on private sector deposit by a minimum of 200 basis points. Our expec­tation is anchored on the recent volatility of the naira within the last few weeks.

Considering the recent de­preciation of the Naira to an all-time low of N176/US$1.00, the prospective pressure at the interbank market and the im­port dependent nature of the Nigerian economy, we expect a domino effect on core index within the next two months. Additionally, the CBN’s recent policy, limiting the remuner­able amount at the standing deposit facility (SDF) MPC forecastMPC forecast

to N7.5billion has eased liquidity within the banking system and may constitute a prospective headwind to price stability,” Ebo said.

“Short term policies , that is, the sustained defence of the Naira, will be required to calm nerves easing the volatility in the foreign exchange and capi­tal markets.

“We anticipate the current 12 per cent and 75 per cent MPR and CRR on public sec­tor deposits will be sustained. However, a mild increase in the CRR on private sector deposits may be considered. On the foreign exchange side, the MPC may opt for a subtle extension of the mid-point at the official foreign exchange window to ease the pressure of fiscal buffers,” it explained

According to Afrinvest, the MPC would also be required to take an active role, design­ing long-term strategies that actively contribute to econom­ic development and support the diversification agenda of the Federal Government.

Meanwhile, other sources maintained that the meeting would also raise the CRR on private sector funds to 18 per cent from 15 per cent, while retaining CRR on public sector funds at 75 per cent.

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