Analysts expect CBN MPC to either maintain status quo or cut key lending rates

Analysts expect CBN MPC to retain or reduce lending rates.
The MPC will sit at its two-day rate setting meeting for the first time since the commencement of President Muhammadu Buhari's second term in office.
Nigeria's key lending rate is currently at 13.5% and inflation moderates to 11.22% in June.

The Central Bank of Nigeria (CBN) Monetary Policy Committee will vote to either maintain policy rates at the current levels or reduce them, analysts said.

The diverse views on the outcome of the MPC meeting came as a result of the current economic situation in the country as well as the monetary authority recent 5-year agenda.

The policy rate-setting committee will meet in Abuja from Monday, July 22 to July 23, 2019, in a first meeting after the commencement of President Muhammadu Buhari's second term in May.

Analysts at Afrinvest expect CBN MPC to keep the rates at current levels despite the tone of members to support monetary easing.

"We expect rates to be kept at current levels."

“Based on our analysis of recent issues, we believe the PC would maintain status quo on all policy rates in the next meeting - (MPR) at 13.5%, cash reserve ratio (CRR) at 22.5%, liquidity ratio at 30% and asymmetric corridor at +200 and -500bps around the MPR,” Afrinvest team said in a note seen by Business Insider SSA by Pulse.

“We note that monetary easing is already on course in the debt market as the MPR is only symbolic. We expect CBN to continue to ease by guiding yields downward through its less aggressive liquidity management operations.

Following the same step, analysts at Financial Derivatives Company Limited also projected that the MPC will retain the lending rates.

“We expect the committee to continue with its wait and see approach on monetary policy parameters and continue to use OMO activities and forex interventions to control liquidity in the system.”

FSDH Research predicts a 0.5% cut in the MPR, as well as a possible adjustment to the asymmetric rates around the MPR.

“There will be two possible policy decisions open to members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) when they meet on 22-23 July 2019. They can vote to either maintain policy rates at the current levels or reduce them.”

“An increase in policy rates is not an option under the current economic situation in the country. The short-term outlook of the inflation rate (which points to a declining trend, other things being equal), stability in the foreign exchange rate, and the drive of the Federal Government of Nigeria (FGN) and the CBN to stimulate growth in the economy all to support a rate cut.

“Such a cut would add weight to the implementation of the CBN's 5-year strategic plan."

At its last meeting in May, the MPC held the MPR at 13.50% and retained the asymmetric corridor of +200/-500 basis points around the MPR. It retained both the Cash Reserve Ratio (CRR) at 22.5%; and the Liquidity Ratio (LR) at 30%. In June, the country's inflation rate also dropped moderately to 11.22%.