Equity investors position ahead of audited reports, MPC outcome

Despite the Central Bank of Nigeria, CBN’s retention of the benchmark interest rate at 11.5 percent, a Senior Research analyst at FXTM , Lukman Otunuga , has said that the apex bank   may be forced to tighten its monetary policy before the end of the year if exchange rate differentials widen between the naira and other currencies,.

Reacting to the CBN’s retention of rate and Nigeria’s outlook for the year 2022, he stated that “it is not only the US Federal Reserve, that will be under the spotlight but for those with an interest in Africa’s largest economy, all eyes were on the CBN which is widely expected to conclude with interest rates left unchanged.”

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According to him “While other countries across the globe are experiencing untamed inflation, Nigeria’s inflation continues to slow. Although the annual inflation rate rose to 15.63% in December 2021, after eight straight months of declines – the trend still points south. This continues to provide the CBN enough breathing room to leave interest rates unchanged in an effort to promote economic growth.”

On how long will the apex bank keep the interest rate unchanged, he said: “As the US Fed and other major banks tighten monetary policy, the CBN may be forced to act – especially if differentials widen between the Naira and other currencies. Domestically, pre-election spending ahead of the general elections in 2023 could rekindle inflationary pressures – possibly forcing the CBN to take action. While the first MPC meeting of the CBN may be a non-event as the Central Bank sticks to the script, 2022 promises to be eventful for the bank and the Nigerian economy.”

Commenting on the outcome of the first MPC of the year, analysts at Cordros Capital, a Lagos based investment house, stated: “The decision of the Committee to maintain the status quo on monetary policy parameters did not come as a surprise to us. Although the Committee expressed concerns about the impacts of policy normalisation in advanced countries on the exchange rate and domestic price pressures, they believed it was desirable to hold rates constant to allow previous policy actions to permeate the economy.

“Though we find justification for the Committee’s decision on the grounds that output growth in the real sectors remains soft, we believe there would be a compelling need to tighten monetary policy as external sector pressures mount.

“For us, the timing of a change to a hawkish stance would be primarily hinged on the policy actions of global central banks as they redirect their efforts towards curbing inflationary pressures.

“In the near term, we believe the    Monetary Policy Committee , MPC will be walking on tight ropes as it attempts to drive economic recovery and stabilise the external sector.”

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