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By Chinwendu Obienyi
The odds that the Monetary Policy Committee (MPC) will keep the policy parameters unchanged is high based on optimism from economic analysts on sustained post COVI-19 recovery.
The MPC is set to hold its second set of meetings of the year between March 22 and 23, 2021 and analysts say they expect the committee to review the domestic and external macroeconomic conditions and financial marketdevelopments since its last meeting in January and also provide forward guidance on how to balance the competing goals of price and exchange rate stability.
According to analysts at Cordros Research, the odds are based on the recent Q4 2020 numbers with real GDP growth growing marginally by 0.11 per cent year-on-year (y/ as against -3.62 per cent recorded in Q3 2020.
They noted that the positive GDP outturn in Q4 2020 will bring some comfort to the Committee that the knock-on effects of monetary and fiscal responses to the pandemic are gradually beginning to yield results while economy’s growth fragility will remain a significant concern for the Committee.
Whilst restating its confidence about the sustainability of the economy’s full re-opening due to the arrival of an estimated 3.94 million doses of COVID-19 vaccines, Cordros Research said for instance that this would support improved informal sector activities (which contributes over 60 per cent to GDP) as supply chain networks gravitate towards pre-pandemic levels.
“Consequently, we think the preceding lays the ground for sustained economic recovery over the rest of the year. We have revised our 2021 Full Year (FY) GDP growth forecast to 2.75 per cent y/y from 1.98 per cent y/y. Overall, we expect the Committee to express their confidence about continued expansion in economic activities whilst maintaining the positive growth trajectory over Q1 2021 and beyond.”, they said.
The research based firm, said, they expect Committee members to vote for a “HOLD” decision, adding that most members believe that the MPC still needs to maintain its accommodative monetary stance, despite rising inflationary pressures, to enable economic growth and gain more foothold.
“Moreover, we think a hike in interest rates will trigger another wave of sell offs in the bond market, amplifying deficit financing pressures for the federal government. Additionally, it will also push borrowing rates upwards, constraining credit flow to the private sector.Lastly, we expect the Committee to highlight its recent initiatives on diaspora remittances as a policy action that will help ease the local currency pressures in the short term until the CBN can step up its intervention across the official windows. On a balance of factors, we believe the Committee will keep the monetary policy parameters unchanged and affirm the continued adoption of its secondary “toolbox” in addressing the imbalance in the external account and restoring macroeconomic stability”, they said.
