As calls for the reduction of the benchmark lending rate deepens, some analysts have predicted that the Monetary Policy Committee may leave the rate unchanged at the next meeting scheduled to hold on Monday (today) and Tuesday.
A report by Meristem Securities made available to our correspondent stated that while the growth argument might support a reduction, the over-riding objective of price stability suggested otherwise.
The report pointed out that on a balance of factors, the MPR would be retained at 12 per cent.
It said, “Outlook on domestic output is quite critical to the decision of the MPC given the attendant impact on inflation and interest rate. There may be arguments to support a reduction of MPR for the purpose of stimulating growth through credit to private sector; but historical data shows that credit to private sector has not really been responsive to changes in MPR.
“In past meetings, the MPC has consistently maintained that until inflation shows a consistent decline over time, there would be no justification for moderation in the MPR as this could trigger a wrong signal on monetary policy stance.”
Similarly, a report by Financial Derivatives Company Limited stated, “It is expected that the MPC may maintain its monetary policy stance, thus, leaving the benchmark interest rate unchanged at 12 per cent per annum as a result of the recent weakness in most of the indicative variables, the most potent threat being the effect of a revenue shortfall resulting from an oil price and production decline.”
The analysts said a quick look at interest rate levels in the economy portrayed a downward trend the people expected to persist, irrespective of the CBN’s position.
They, however, said the decline in oil price and production raised concerns of a decline in revenue estimates, risk of a wider fiscal deficit, slowdown in growth of external reserves and further weakening of the exchange rate.
The report added, “During the month under review, oil prices declined by an average of seven per cent and oil output were eroded by oil theft and bunkering activities. Furthermore, the value of the naira weakened against the dollar by 0.35 per cent at the inter-bank market.
“Hence, the declining oil price, failing oil output and the depreciating naira reduce the likelihood that the MPC may resist the urge to adopt a more accommodative monetary policy in May.”
The MPC will meet on May 20 and 21, 2013 and among the economic indicators to be considered is the inflation rate.
A benign inflation rate outlook forms the basis for the call for an expansionary monetary policy by investors and portfolio managers.
The MPC, which determines interest rate, has in the past one year, kept the MPR at 12 per cent, which some analysts, manufacturers and industrialists believe is not favourable to them.
Also, the CRR and the Liquidity Ratio are currently at 12 per cent and 30 per cent, respectively.
The Punch.