Vetiva: Nigeria MPC decision to hinge on evolving growth-inflation dynamics in domestic economy
Vetiva says it expects members of Nigeria’s Monetary Policy Committee (MPC) to vote to keep the Monetary Policy Rate (MPR) and all other policy rates constant today. Mosope Arubayi, Economist at Vetiva joins CNBC Africa for more.
Fri, 24 Jan 2020 11:51:16 GMT
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AI Generated Summary
- Global economic uncertainties drive accommodative monetary policies, benefiting emerging markets like Nigeria
- Domestic macroeconomic indicators show signs of stability with concerns about inflation
- Significant FX reserves support Naira defense, while a gradual depreciation strategy is favored over aggressive devaluation
Nigeria's Monetary Policy Committee (MPC) is expected to keep the Monetary Policy Rate (MPR) and all other policy rates unchanged in their latest decision, according to predictions by Vetiva, a leading financial institution. Mosope Arubayi, an Economist at Vetiva, highlighted the key factors influencing their forecast, including global monetary policy outlook and evolving inflation dynamics in the domestic economy. The global economic landscape is currently characterized by accommodative monetary policies due to fears of a global growth slowdown, leading central banks to maintain a neutral stance. This environment favors emerging markets like Nigeria, attracting capital inflows. Domestically, Nigeria's macroeconomic fundamentals have been relatively stable, with signs of gradual economic growth. Purchasing Managers Indices and exchange rates have shown resilience, supported by the Central Bank's interventionist policies and healthy reserves of $38 billion. However, inflation, driven by border closures, remains a concern. The recent decisions of the European Central Bank and the Bank of Japan to hold rates are expected to support capital flows into Nigeria, easing pressure on the exchange rate. While the MPC's consistent decision to maintain rates may seem predictable given internal dynamics, concerns loom regarding potential FX demand, import challenges, and inflationary pressures. Arubayi emphasized that the current account situation and CBN's exchange rate management could unsettle foreign investors. Despite these risks, she believes there is currently no urgent need for a rate adjustment. The significant FX reserves of $38.25 billion provide a buffer for defending the Naira. Speculation about additional foreign loans suggests a proactive approach to stability. When asked about the possibility of devaluation, Arubayi ruled out aggressive devaluation but hinted at a gradual depreciation to address exchange rate pressures. She compared the current situation to the 2016 devaluation, indicating a more measured approach this time. Arubayi's insights suggest a cautious but steady path for Nigeria's economic policy moving forward.