Ahead of tomorrow's 239th Meeting of the
At its May meeting, the MPC held monetary policy rate (MPR) at 12 per cent; kept cash reserve ratio (CRR) on public sector deposits at 7.5 per cent and CRR on private sector deposits left at 15 per cent and retained the MPR at +/-200 basis points. However, economic watchers said the temptations to tinker with the MPR was reinforced by a little rise in the inflation figures for the month of June, which was put at 8.2 per cent as against 8 per cent in May, according to the report released by the
Economic analysts who shared this view banked on current favourable indices on the eve of the crucial meeting to believe the CBN will uphold the existing policy rates. They argued that although the Consumer Price Index had risen to 8.2 per cent, the period also coincided with sustained growth of the nation's foreign reserves which hit
The new inflation report came less than a week before the CBN Governor, Mr.
Emefiele said on
Giving a peep into tomorrow's meeting, the
Writing in its monthly report-FDC Economic Bulletin released last week, the research firm noted that: "This is the first time it (inflation) has risen above 8 per cent in the last 9 months. Although, the year-on-year inflation has been within the CBN band of 6-9 per cent for 2014, the trend in the last quarter has shown that inflation has been creeping upward. There have been three consecutive upward notches that have been caused by the steady rise in the food and core sub-indices of the CPI.
"In July, we are of the opinion that there would be a further increase in the headline inflation rate in spite of the commencement of the harvest season. The projected increase in July will be partly due to the factors that include steady growth in money supply - annualised money supply growth was 5.81 per cent in May; Slow but steady impact of the new automotive policy on transportation cost and disbursement of capital votes under the 2014 budget, and increased security spending.
"We do not believe the inflation rate will lead to a change in the monetary policy stance at the MPC meeting next week."
FDC, however, believed if the increase in consumer prices continues and remains persistent, the market will anticipate an increase in interbank interest rates, explaining further however, that the market is expected to remain square and tentative pending the MPC meeting while market liquidity continues to determine interest rate directions.
"The impact of a marginal increase in the headline inflation rate is expected to be neutral on the exchange rate in the near term. In addition, stakeholders would be keen on the direction of global oil prices and the impact on the external reserves as well as the country's trade balance statistics," the report stated.
However, the analysts believed the impact on the stock market may be different. The FDC report said, "With an uptick in the headline inflation rates, there is a high probability of an increase in interbank interest rates. Hence, we expect a decline in the prices of equities due to the inverse relationship with interest rates. "We are confident that the marginal increase in inflation is unlikely to have any significant impact on the current monetary policy stance. As a result, investors' sentiment, profit taking and bargain hunting will continue to keep the stock market positive," the report said.
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