Monetary policy tightening could worsen Nigeria's economic uncertainty – Analysts

By The Citizen

The decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to tighten monetary policy portrays conflicting signals as to the true direction of monetary policy in the Nigerian economy.

Analysts at Eczellon Capital Limited observed that the MPC's decision could further worsen the economic uncertainty in the country.

The MPC concluded its second meeting for the year last week against the backdrop of recent domestic economic developments - rising inflation and slowing economic growth - and external economic headwinds such as tepid global growth as well as stable energy prices.

The Committee decided by a majority to reverse its accommodative monetary stance and commence another tightening of monetary policy in the country. Specifically, the Committee increased its benchmark rate from 11.0 per cent to 12.0 per cent and hiked Cash Reserve Ratio (CRR) for banks to 22.5 per cent from 20.0 per cent.

However, in the their comment post MPC meeting, analysts at Eczellon Capital Limited, noted that the decision of the committee was hinged on the need to: combat rising inflationary pressures, reduce banking system liquidity, attract foreign inflows and invariably support the slide in the value of the nation's currency.

'We, however, doubt that the move by the MPC would attract foreign inflows or stem inflationary pressures. As for the latter, the key driver for the sharp rise in prices was structural bottlenecks in the economy; while uncertainty around the value of the naira is the primary reason for the current shortage of foreign inflows into the country. Thus, until a proper guidance is provided on the nation's FX policy guidelines, we expect investors to continue their 'wait and look' stance on the Nigerian economy,' they said. Thisday