By Babajide Komolafe

THE Monetary Policy Committee, MPC, of the Central Bank of Nigeria, CBN, is expected to retain the monetary policy rate, MPR, at 14 percent as well as other policy rate at the end of its meeting holding this week in spite of concerns over the two month  upward trend in inflation rate.

Last week, the Nigeria Bureau of Statistics, NBS, released the inflation data for December 2018, which showed that the inflation rate rose for the second consecutive month to 11.44 percent from 11.28 percent in November.

CBN Headquarters

Analysts opined that while the two months increase in inflation rate will be a major consideration at the MPC holding this week, the committee will, however, retain its policy rates due to the upcoming general election.

According to analysts at Lagos based Financial Derivatives Company, “While this increase was widely anticipated, the rate of increase was sharper than expected. The rise in the price level was as a result of the demand pull effect of festive spending. Notably, the slope of the inflation curve is becoming steeper, signifying that the price momentum could persist in the near term.

“This rise will be one of the major considerations at the next MPC meeting this month.  Being the meeting just before the general elections, we expect the committee to maintain status quo on all monetary parameters.”

Also commenting, analysts at Lagos based Cowry Asset Management Limited said: “We expect further upward pressure on general price level of goods and services in January 2019 as Nigeria’s presidential election campaigns intensify. Meanwhile, ahead of the 265th Monetary Policy Committee (MPC) meeting scheduled for Monday and Tuesday, January 21 and 22, 2019, we expect the MPC to retain the MPR at 14 percent, within the existing asymmetric corridor of +2 percent  and -5 percent. This is against the backdrop of rising inflation expectations amid implementation of minimum wage, foreign exchange pressure and the need to maintain positive real interest rates in order to attract portfolio inflows which have largely reversed in recent times.”

In their preview of the MPC meeting, analysts at FSDH Merchant Bank also stated: “Although the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has kept the policy rates at the current levels since July 2016, FSDH Research believes maintaining rates is still advisable. However, we expect the CBN to continue to use the sales of government securities to manage inflation expectation and exchange rate stability.”

Decline in cost of funds to persist

Meanwhile cost of funds is expected to further fall this week in response to inflow of N381.54 billion from matured secondary market (Open Market Operations, OMO) treasury bills (TBs), and slow down in  liquidity mop activities by  the CBN.

Last week, average short term interbank interest rate fell by 550 basis points (bpts)  in spite CBN’s sale of OMO TBs to mop up N574.59 billion as well as sale of N152 billion worth of primary market TBs. The impact of the outflow totalling N726.59 billion was eliminated by inflow of N786.37 billion from matured TBs during the week.

Hence, interest rate on Collateralised lending (Open Buy Back, OBB) fell by 467 bpts to 15.33 percent last week from 20 percent the previous week. Similarly, interest rate on overnight lending dropped by 633 bpts to 16.17 percent last week from 22.5 percent the previous week.

Analysts at Cowry Assets projected that this trend will persist this week due to the inflow of N381.54 billion from matured TBs.

Naira records mixed performance

The naira recorded mixed performance in the parallel market and in the Investors and Exporters (I&E)  window for the second consecutive week.

According to, the live exchange rate platform of the Association of Bureaux de change Operators of Nigeria (ABCON),  the parallel market exchange rate  rose for the second consecutive week to N361 per dollar last week from N360.5 per dollar  the previous week, indicating 50 kobo  depreciation for the nation’s currency.

The naira however appreciated by N2.15  in the I&E window, as the indicative exchange rate dropped to N362.79 per dollar last week from N364.94 the previous week.

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