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Experts react as MPC retains MPR, other parameters

Godwin Emefiele, CBN Governor

By Chinyere Joel-Nwokeoma/Lydia Ngwakwe

Lagos, May 25, 2021

The Association of Capital Market Academics of Nigeria (ACMAN) says retention of all policy parameters by the Central Bank of Nigeria (CBN) is in line with expectations, due to stagflation.

Stagflation refers to an economy that is experiencing a simultaneous increase in inflation and stagnation of economic output.

The News Agency of Nigeria (NAN) reports that the Monetary Policy Committee (MPC) of the apex bank, at the end of its two-day meeting on Tuesday, retained all policy parameters.

The committee retained the Monetary Policy Rate (MPR) – benchmark interest rate – at 11.50 per cent, while asymmetric corridor remained at to +100/-700 bps around the MPR.

It also retained the cash reserve ratio  at 27.50 per cent, and the liquidity ratio at 30.00 per cent.

Reacting to the development, ACMAN President, Prof. Uche Uwaleke, told the News Agency of Nigeria (NAN) in Lagos that the status quo was expected.

Uwaleke said a hold position was the most expedient decision to take, given the prevailing economic condition of the country.

“As long as stagflation continues to challenge the economy, the CBN’s monetary policy stance will be dictated by the need to strike a balance between tackling inflation and supporting economic growth.

“Against the backdrop of elevated inflation, a reduction in MPR or other policy parameters, though persuasive, will only serve to worsen foreign exchange pressure despite recent attempt to unify exchange rates, and exacerbate inflationary trend.

“On the other hand, given weak economic growth and the need to support an economy still reeling from the impact of COVID-19 pandemic, tightening monetary policy via increase in MPR is capable of rolling back the modest progress being made.

“It’s instructive to note that the non-oil sector GDP actually tanked during the first quarter of 2021.

“So, maintaining the status quo while strengthening the CBN’s intervention initiatives in critical sectors of the economy is a wise decision,” Uwaleke said.

Speaking on the implications to the stock market, he said that it would be insignificant because the MPC outcome was expected.

“Equities market performance has been driven largely by interest rate expectations and this will continue to be the case.

“Profit taking and portfolio rebalancing in favour of fixed income securities where yields are on a steady rise will continue,” he added.

The Chief Operating Officer, InvestData Ltd., Mr Ambrose Omordion, said the outcome was aniticapted following the stagflation state of the economy and the weak economic growth of 0.51 per cent, despite the seeming slide in inflation.

Omordion said that the outcome was in line with the global MPC trend to sustain economic recovery and drive.

He said the stock market would breathe out as investors position for March year-end audited results, half-year interim dividend and second quarter earnings season.

According to him, the market is currently witnessing a divergence between strong or rising earnings and weak or falling stock prices.

This, he said, revealed strong potential in equity space, as window to hedge against inflation in 2021.

“Investors should target companies with strong earnings ahead of half year earnings season, knowing that every investment or trade is against expectations,” Omordion said.

Also, Prof. Sheriffdeen Tella, of the Olabisi Onabanjo University, Ago-Iwoye, Ogun, said the committee’s decision was fair.

”There were speculations that interest rate would be increased, but I didn’t see any need for such.

“The economy is still fragile and those variables are better retained. If possible, the interest rate should be lowered to reduce cost of borrowing. So the decision is fair,” the professor of economics said.

The Director, Centre for Economic Policy Analysis and Research, Prof. Ndubisi Nwokoma, however, said that a tighter monetary stance would have been better.

“I think the MPR ought to have been slightly increased, to address the growing rate of inflation as well as help stabilise the exchange rate.

“A tighter monetary policy stance could have better served the current needs of the economy, in my opinion.

“People’s purchasing power has been seriously compromised with the growing inflation,” he said.

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