MPC: CBN Will Not Rock the Boat – Analysts
Godwin Emefiele, CBN Governor

MPC: CBN Will Not Rock the Boat – Analysts

In what appears like a consensus, some investment banking analysts have hinted that the Central Bank of Nigeria (CBN) monetary policy committee (MPC) will not challenge the existing status quo on policy rates ahead of the scheduled meetings.

In their separate projections, analysts think the economic recovery will be given priority in policy decisions at the meeting despite the fact that Nigeria’s headline inflation rate increased in December 2021 according to data from the National Bureau of Statistics.

Next week, the Central Bank of Nigeria (CBN) monetary policy committee is expected to meet for the first time in 2022 to deliberate on policy direction in the light of local and global developments.

The committee had met for the last time in November 2021 for the year when it decided to retain key policy rates and associated parameters. Since then, a lot has changed in the global and local economies.

Federal Reserve has indicated a plan to raise the interest rate in the United States twice in 2022. National Bureau of Statistics reported a reversal in disinflation as Base effects wane.

The monetary authority will continue to favour economic growth over inflation pressures, according to FSDH Capital macroeconomic note share with MarketForces Africa by Tolu Osinibi, the investment firm Chief Executive.

Explaining their position, analysts said the Nigerian economy is on the recovery path, especially following the improved GDP numbers, according to its macroeconomic note.

Nigeria’s headline inflation rate had trended downwards for eight consecutive months, between April and November 2021. However, it reversed the downward trend in the last month of the previous year.

Analysts recalled that earlier in 2021, the monetary policy authority noted that the drivers of inflation in Nigeria are non-monetary factors, adding that the fiscal authorities need to intensify efforts to address structural issues such as the infrastructural deficit, security challenges, high transport cost among others.

With this in mind, FSDH Capital expressed the view that the MPC, in a bid to sustain economic recovery, will continue to favour economic growth over inflation targeting by further expanding credit to the private sector.

Analysts said the emergence of the Omicron variant and its discovery in Nigeria will adversely impact investors’ confidence following the implementation of travel bans by other countries.

This will affect foreign investment inflows and could motivate the MPC to maintain a higher MPR in 2022 in order to attract investment into Nigeria, analysts explained. Read: No Swing: Why MPC Maintains Status Quo, Hold Key Rates

In view of the fact that higher MPR could hurt growth, FSDH Capital analysts anticipate the retention of key parameters in the first half of 2022. In Nigeria, despite the GDP growth dynamics witnessed in 2021, Afrinvest Research projects a 2.9% growth rate for 2022, a higher estimate above 2.7% projected by IMF.

Afrinvest analysts’ optimism for growth is expected to be driven by continued recovery in non-oil GDP. For the oil sector GDP, analysts said they expect the gradual increase in Nigeria’s oil production towards the new cap of 1.83mbpd from the earlier 1.45mbpd, to boost the sector’s performance.

“2022 being a pre-election year, we anticipate a marked shift in fiscal focus to politicking”.

The firm said despite the anticipated electioneering pressures, fiscal policy is expected to become more hawkish as the government seeks to raise revenue generation to fund a ₦17.1 trillion budget with a planned deficit of ₦6.4 trillion.

Meanwhile, analysts expressed a view that the monetary policy environment should remain relatively accommodative. Codros Capital also see MPC retaining monetary policy parameters, according to the investment banking firm note.

“We expect the Committee to retain the MPR at 11.5% alongside other monetary policy parameters”, the firm stated.

However, analysts are expecting the Committee to strike a hawkish tone in light of the gradual tightening in global financing conditions even as inflation remains above the CBN’s medium-term target of 6.0%-9.0%.    

Cordros Capital said its expectation over 2022 is for the growth momentum to be sustained, albeit moderately, as the impact of the favourable base from the prior year dissipates.

As a result, the firm projects the economy would grow by 2.44% and 2.10% year on year in Q4-2021 and Q1-2022, respectively. Accordingly, analysts revealed the expectation that the Committee will reiterate the need for CBN to maintain its current interventions to sustain the recovery of output growth, more so that the PMI readings remain sub-optimal.

Therefore, analysts said they believe the fragile recovery process would induce the Committee to maintain its dovish stance. Also, Cowry Research notes that an increase in MPR would hamper economic growth, hence the investment banking firm analysts do not expect MPC to raise the rate in 2022.

“Our expectation on retention of policy rate centres more on the fact that Nigeria’s inflationary pressure is chiefly cost-push, which would be aggravated if the cost of funding goes higher again – especially for the manufacturers who would pass on the additional cost to their customers.

“We believe that the monetary policymaker would see pre-election aggravated demand-pull inflationary pressure as transient. Hence, we anticipate an upward trend in stop rates and yields on debt securities in order to retain investment in Naira denominated assets”, the firm stated.

#MPC: CBN Will Not Rock the Boat – Analysts