Weak Indices: MPC to Maintain Status Quo as Economy Runs Dry
Godwin Emefiele - CBN Governor

Weak Indices: MPC to Maintain Status Quo as Economy Runs Dry

On account of weaker macroeconomics indices, analysts have predicted that the Monetary Policy Committee will maintain status quo as the economy runs dry.

The Monetary Policy Committee (MPC) would be concluding its 275th meeting on Tuesday, September 22, 2020 as it decides on the direction of the Monetary Policy Rate.

MarketForces reported that the Committee which reduced the policy rate by 100 basis points to 12.50% in May 2020.

Other parameters such as Cash Reserve Ratio (CRR), Liquidity Ratio and Asymmetric band were also retained at 27.50%, 30% and +200 bps and – 500 bps around MPR respectively.

In a note, Cowry Asset Management Limited explained that the Committee’s decision to hold rate in July 2020 was amid its efforts, in collaboration with the fiscal authority, to stimulate economic growth.

Weak Indices: MPC to Maintain Status Quo as Economy Runs Dry
Godwin Emefiele – CBN Governor

Based on the last macroeconomic indices, analysts’ consensus has remained that the economy has bottomed, a situation that has been further exacerbated by the outbreak of the coronavirus pandemic.

With inflation rising, GDP dropping and unemployment skyrocketing, experts say Nigerian economy may be moving to stagflation without growth driven policy strategies.

Some pundits however said that the pandemic has handed a veritable alibi to excuse government’s failed policies to drive the economy.

In August, inflation rate hit the peak, having expanded for 12 consecutive months as misery index worsened.

Cowry Asset said in line with expectations, the National Bureau of Statistics (NBS) reported a 13.22% rise in annual inflation rate for the month of August (the highest since March 2018) from 12.82% printed in July.

Further breakdown showed that annual food inflation jumped to 16.00% in August from 15.48% it printed in July.

The increase in food inflation rate was chiefly due to the sustained pressure on the food basket amid flood cases in food producing areas of the country.

Also, core inflation rate climbed to 10.52% (from 10.10% in July) given the rise in transport, electricity and clothing costs.

Similarly, analysts said imported food index rose to 16.42% (higher than 16.35% in July) amid depreciation of the Naira against the dollar.

Cowry Asset explained that two months moving average foreign exchange rates in the Interbank, BDC and Parallel market rose by 3.06%, 2.87% and 2.54% to N378.86/USD, N465.22/USD and N471.50/USD respectively in August 2020.

On a monthly basis, headline inflation rose to 1.34% in August (from 1.25% in July).

Notably, monthly food inflation rose to 1.67% in August (from 1.52% in July) as prices of bread, cereals, potatoes, yam and meats, amongst others, increased.

Core inflation rose to 1.05% (from 0.75% in July) amid higher clothing and foot wear (+0.95%), transportation costs (+1.12%) and housing and energy (+0.76%).

Amid the implementation of the new service-reflective electricity tariff, coupled with the full deregulation of the downstream sector, Cowry Asset expects inflation to further increase in September 2020 and in preparation of the oncoming festive season.

The firm stated that the rising cost-push inflation in the country, despite the economy running below potential (especially now, due to COVID-19), dictates needs to do more to boost productivity while also releasing the chokehold of insecurity across the country.

“We do not see the MPC jack up the policy rate in the new week given that a reversal in its expansionary policy may further hamper demand-driven growth – which is already in negative territory at minus 6.10%.

“Hence, we expect the Monetary Committee to hold MPR at 12.50% in order to further consolidate on its several measures put in place to lift Nigeria out of the anticipated recession in Q3 2020 and to restore the country’s output growth to the pre-COVID-19 levels”, Cowry Asset explained.

Read Also: Experts laud MPR reduction, say industrial operators to benefit

Weak Indices: MPC to Maintain Status Quo as Economy Runs Dry