The decision by the Central Bank of Nigeria to retain the Monetary Policy Rate and other parameters may be hampered by prevailing political and economic headwinds, analysts say.
The CBN had on Tuesday left the rates unchanged after its two-day Monetary Policy Committee meeting, explaining that the decision was to tame the high inflation rate of 18.12 per cent, so it does not spiral and lead to another recession.
It was also taken to sustain the recent gains made by the economy, the CBN Governor, Godwin Emefiele, added.
Analysts at the Cowry Asset Management were of the opinion that, in the short run, foreseeable factors might negatively impact on the country’s economic growth.
“We feel that the harmonisation of the exchange rate at the official and Investors and Exporters windows, worsening insecurity, probable subsidy removal and market reflective electricity tariff may, in the medium-term, assert pressure on inflation rate and negatively impact economic growth,” the analysts said.
“We note that the unanimous decision of the MPC members to leave all key parameters unchanged was to allow further economic growth given the fragile Gross Domestic Product growth rate printed in Q1 2021.”
The committee had retained the MPR at 11.5 per cent, asymmetric band at +100 basis points and – 700 bps around MPR, cash reserve ratio at 27.50 per cent and liquidity ratio at 30 per cent.
In a communique issued at the end of its two-day meeting, the committee detailed some observations and considerations surrounding its decision to maintain the status quo.
It observed that recovery across global economies was amid widespread vaccination, easing of restrictions, reopening of economies and gradual return to international travel.
The MPC noted, however, that India and Brazil had continued to battle high levels of infections and fatalities, resulting from mutating strains of Coronairus Disease.
The International Monetary Fund revised global output growth rate for 2021 to 6.5 per cent from earlier projection of 5.5 per cent, although prices are expected to rise globally due to the massive monetary and fiscal injections in several countries to mitigate the impact of COVID-19, it said.
Inflation may breach several medium to long term objectives of most central banks across the world as economic activities continue to recover, the committee said, hinting that monetary policy normalisation might commence by most central banks by the fourth quarter of 2021.
The CBN Purchasing Manager Index rose to 49.0 index points in April 2021 from 48.8 index points in March, which signals economic growth following the easing of restrictions in Nigeria.
In its considerations, the MPC noted that inflation remained well above the ceiling of the bank’s six per cent to nine per cent inflation target corridors as a result of deteriorating public infrastructure and insecurity.
It added that it was mindful of the impact of exchange rate pressure resulting from capital flow reversal associated with COVID-19 shock as investors sought safe haven.
