Last week, the Monetary Policy Committee (MPC) at its July meeting took key monetary decisions expected to shape the financial markets in the months to come. Most analysts have their post-MPC meeting views. Excerpts :
Hold decision came with strong pro-growth policy tunes – BGL
The tone of the MPC went dovish reflecting the policy poise of the new CBN governor – the pro-growth, job creation and wealth creation content of the first meeting of the new CBN governor increased significantly highlighting his policy stance.
Hold on all policy indicators justified on stable metrics across board- the decisions are however driven largely by the changing stance of the Committee as key areas such as the continuing ubiquitous liquidity surfeit in the banking system was recognised with no specific action point.
We expect stability across all market segments in reaction to this decision with the exception of the exchange rate market- the Committee’s clear disposition to the ease monetary condition despite recognising the need to maintain stable exchange rate is expected to translate into a mild but acceptable depreciation of the currency across market segments in the near future. This is despite the effect that the ongoing market actions in the BDC segment would have on the market.
Reduction in MPR is however not expected until after the general elections in 2015 – the increasing unexplained foreign transactions; high systemic liquidity; potential effect of sustained US QE tapering on the foreign exchange and the lack of fiscal buffer would curtail the dovish CBN from reversing benchmark rate at this time. It however may commence implementation of credit easing among others on its dovish front.
Retention of policy rates will keep financial market stable – UBA Capital
In line with our expectation, the committee decided to keep the Monetary Policy Rate (MPR) at 12 percent; Liquidity Ratio at 30 percent, Cash Reserve Ratio (CRR) on public and private sector deposits at 75 percent and 15 percent, respectively.
Among others decisions… the committee raised concerns about weakness in translation of stability to micro economic gains in employment and access to finance, especially by small and medium scale businesses. It therefore emphasised on the need to take into account the long-run impact on employment level, wealth creation and growth of businesses.
In our opinion, retention of the policy rates will keep the financial market stable and help cushion all possible shocks from the global and domestic space in the near term. However, with the steady rise in Inflation, there is a possibility of a policy reaction should inflation get to its upper limit of 9 percent.
