MPC to leave baseline interest rate at 14 per cent ― Expert

A professor of Capital Market, Uche Uwaleke has predicted that the Monetary Policy Committee (MPC) of Central Bank of Nigeria (CBN) meeting on Monday and Tuesday will leave baseline rates unchanged for the 15th consecutive time.

MPC meets once in two months and has retained Monetary Policy Rate (MPR) (rate at which it lends to banks) at 14 per cent along with all the other base rates including Asymmetry Corridor at +200-500 basis points around MPR, Cash Reserve Ratio (CRR) at 22.5 per cent and Liquidity Ratio at 30 percent.

“I see members voting for a hold on the policy parameters.

“The reality is that in spite of the increase in last month’s inflation rate to 11.4 per cent, the MPC is not likely to further tighten monetary policy in order not to jeopardize the chances of the ruling party in the coming elections.
So, in a way, political consideration will be a major factor.”

Uwaleke, who is Chair of the Banking and Finance Department at Nassarawa State University said his prediction is the trend in many countries regardless of central banks’ independence.

“Recall that in the run-up to the Presidential elections in the US, the then Chairman of the US Fed Reserve was accused by Donald Trump of deliberately keeping the policy rate low to favour the Democratic party.

“The point here is that the MPC will be mindful of the current political uncertainties and so will go for maintaining the status quo.”

According to him, MPC will, however, rely on its usual rhetoric of global and domestic factors to support the hold-rates stance to justify its decisions.

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On December inflation figures released last week by National Bureau of Statistics (NBS), Uwaleke said the increment was expected.

“The uptick in the CPI figure for December should not come as a surprise considering that the month is characterized by an increase in the demand for goods especially food.

“It is what I call the ‘Santa Claus’ effect.

“This explains why the rise in the inflation rate from 11.28 per cent in November 2018 to 11.44 per cent in December came from the increase in the volatile food index from 13.30 per cent to 13.56 per cent while the core index remained same at 9.8 per cent.”

He further noted that the food items that increased in price were chiefly those that are usually in high demand during festive periods such as soft drinks, fish, cereals and tubers.

I expect the ‘Santa Claus’ effect to linger into January 2019 which is likely to record a higher inflation rate.
He explained that it will, however, begin a gradual climb down from February or by March this year.

“Expected improvements in food supply, power and transport infrastructure in particular as well as stability in exchange rate given the country’s huge external reserves needed to defend the naira will help the government achieve its single digit inflation target of 9.98 per cent contained in the 2019 budget.”