17 March 2013, Abuja – The Central Bank of Nigeria (CBN) will relax its monetary policy by reducing its policy rate to 11 per cent next week when its Monetary Policy Committee (MPC) meets, Bismarck Rewane, Financial Derivative Company has predicted.
“Monetary Policy Committee (MPC) will shave off 100 basis points off the monetary policy rate (MPR) to 11 per cent or/and cut the cash reserve ratio (CRR) by 1.0 per cent”, he said in a Monthly Economic News and Views presented at the Lagos Business School (LBS). He also predicted that the naira will “lose approximately 0.5% in the interbank forex market”
The CBN will hold its Monetary Policy (MPC) meeting on Monday to review the economy and its monetary policy. In an effort to curtail inflation, the apex bank had been operating a tight money supply policy since 2012, raising the monetary policy rate (MPR) six times from 6.0 per cent to 12 per cent between September 2010 and October 2011. Similarly, the CBN raised the Cash Reserve Ratio (CRR) of banks to 8.0 per cent from 1.0 per cent.
With inflation trending down to 9.0 per cent in January from a peak of 12.9 per cent in April 2012, there is increased expectation of a downward review of the MPR.
Rewane said that public pressure for a cut in MPR in March is increasing and the further decline in inflation will be a major determinant. He said that there is however fear that a reduction in the MPR would prompt depreciation of the naira and capital outflows of hot money.
But going by the personal statement of the CBN Governor, Mallam Lamido Sanusi at the last MPC meeting, the apex bank might not be disposed to reducing the MPR. According to Sanusi, since the tight money supply is working there is no for policy change.
He said, “Although inflation outlook is stable, the increased projected spending by state governments and raised oil price benchmark at the Federal level may pose a risk in the medium term. The global economy remains fragile and the outlook is mixed, at the very best. In the past year, we have achieved price stability, exchange rate stability, banking system stability and a healthy reserves position.
“The equities market is also on the mend and although it is still vulnerable to unstable portfolio flows, the fundamentals suggest that we are nowhere near a bubble at this point. Indeed, the only negative in this picture is the high lending rates faced by borrowers. The CBN will continue working with the banks to work out how to best address the question of spreads.”