Negative Growth, Biden Presidency to Influence MPC Decision - Analysts
Godwin Emefiele -CBN Governor

Negative Growth, Biden Presidency to Influence MPC Decision – Analysts

Economic recession, Joe Biden election as President-elect of the United States of America have been cited to influence the Nigeria’s monetary policy decision on Wednesday.

For the last time in 2020, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to meet November 24th and 25th, 2020.

Following two consecutive negative economic growth in 2020, Nigeria slides into economic recession amidst the apex bank growth stimulating policies, noted to have failed to reflate the performance of the economy.

In its macroeconomic report, Greenwich Trust Limited revealed an expectation of sustained dovish stance.

At the last meeting, the MPC had reduced policy rate by 100 basis points to 11.5% while adjustment liquidity and cash reserve ratio were sustained.

Read Also: ‘MPR Cut Positive for FG Borrowing Plan, Negative for inflation’

According to Greenwich, MPC will assess progress recorded and key developments in the global and domestic space, as well as the outlook for the rest of the year to determine policy directions for key monetary variables in the near term.

On the global scene, the firm believes that the Committee’s considerations would border around the second wave of the COVID-19 induced restrictions across Europe and the U.S, the run-up in vaccine announcements.

This is expected to include the recently concluded U.S election, the optimism in the oil market, the elevated debt levels across the Emerging and Developing economies (EMDEs), as well as the heightened level of fiscal deficits.

On the domestic front, Greenwich said the Committee will review emerging themes like the demand pressure in the FX market.

This will include the nation-wide civil unrest, rising inflationary pressures, slower pace of economic growth thus far, along with the assessment of the impact of the its interventions to the real sector.

In addition, analysts said the Committee’s decision is expected to be influenced by the third quarter GDP report, given the negative growth rate recorded.

As well, the pockets of progress made in the real sector, evidenced by November’s Purchasing Managers’ Index (PMI) figure of 50.2pts, amongst a host of other developments in the economy.

At the last meeting, the Committee expressed concern over the slowdown in the domestic economy, emanating from significant headwinds closely linked to the decline in oil revenue, the spates of upward pressures on price levels, alongside the revised exchange rate.

Hence its decision to stimulate growth through the MPR reduction.

“For this meeting, we believe the Committee faces a myriad of challenges such as the surging Inflation numbers, the streak of pressures at the FX window, alongside several other factors that constrain an economic recovery. 

“Against this backdrop, the Committee could weigh the option of either hiking, loosening, or maintaining status quo”, Greenwich explained.

Analysts at the firm said while tightening may curb inflationary pressures, increase capital flows, and strengthen external reserves, it may dampen the progress made by real sector players towards accessible credit and may further weaken growth prospects.

This may reverse the feat achieved in credit growth to the real sector, analysts explained.

A loosening stance according to Greenwich, however, should further stimulate output growth, stem the skyrocketing unemployment, and ease monetary conditions in the economy.

Although, the macroeconomic environment remains severely battered by fundamental factors, further exacerbated by the COVID-19 disruptions, analysts at Greenwich believe the Committee will uphold its objective of driving growth.

On a balance of factors, analysts said they do not anticipate a divergence from the dovish monetary policy stance at its next meeting, as this should give room for the stimulus interventions and hopes for the vaccine trials to materialize.

Moreover, analysts said the Committee may also allow time in order to assess the impact of the previous rate cut on stimulating growth in the economy.

Negative Growth, Biden Presidency to Influence MPC Decision – Analysts