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By Chinwendu Obienyi
Apparently worried about soaring inflation and the Central Bank of Nigeria (CBN)’s indecision on surging interest rates, economic analysts have noted that this may send wrong signals to investors and erode investors’ confidence in the financial market.
The anxiety comes as the apex bank again, postponed the Monetary Policy Committee (MPC) meeting earlier scheduled for Monday and Tuesday but has now been moved to an unspecified date.
The postponement came as a surprise to many analysts because September’s rates meeting was also postponed without any tangible reason. At that time, the CBN had promised to communicate new dates in “due time.”
The meeting would have been the first rate meeting under the new CBN Governor, Olayemi Cardoso, whose appointment was approved by the Senate in September. Under the acting CBN governor, Folashodun Shonubi, the bank raised interest rates twice but Cardoso and his new team are yet to make a rate decision since coming on board.
Since the last MPC meeting in July, the monetary policy space has changed rapidly, given some orthodoxy introduced by the CBN, particularly since the beginning of October. The significant changes include removing the maximum limit on the Standing Deposit Facility (SDF) and OMO auctions.
Also the domestic price pressures sustained their uptrend, settling higher at 27.33 per cent as of October (vs July: 24.08 per cent year-on-year (y/y) | September: 26.72 per cent y/y), with pressures stemming from both the food (+88 basis points to 31.52 per cent y/y) and core (+73bps to 22.58 per cent y/y) baskets. Furthermore, currency pressures remain intact, with local players remaining the key drivers of the volumes in the Nigerian Autonomous Foreign Exchange Market (NAFEM) since the beginning of the year.
Based on this, analysts at Cordros Research had expected that the MPC would hike the interest rates by 100bps, noting that this would send a strong message that the apex bank is not relenting in its inflation fight, particularly as near-term inflation expectations are tilted to the upside, potentially reaching a 28.02 per cent y/y peak in December.
Responding to the development, a financial analyst who craved anonymity, criticised the bank’s decision to suspend the MPC meeting, citing poor communication as a persistent challenge to the country’s efforts to attract foreign investors.
He said, “We had thought that Cardoso and his new team would speak to Nigerians at the MPC meeting so that the market which is information driven will either end up in the positive or negative territory.
Investors are eager to hear from Governor Cardoso and his team on their stance regarding interest rates, and the uncertainty surrounding the meeting may have contributed to investors taking profits, as evidenced by the 0.15 percent decline in the stock market’s All Share Index (ASI) at the close of business yesterday. If this keeps happening, then I do not think this bodes well for the market”.
