Business

‘Reversal of expansionary policy may hinder growth

As the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) concludes its two-day meeting today, analysts at Cowry Asset Management Limited have said that they are not expecting the committee to reverse its expansionary policy as such an action could further hamper demanddriven growth.

 

The analysts, who stated this in the firm’s, “Cowry Weekly Financial Markets Review and Outlook,” obtained by New Telegraph yesterday, said that with inflation maintaining its upward trend in recent times, the expectation ought to be that the MPC should necessarily be considering taking additional steps to boost productivity.

 

However, the analysts said they were forecasting that the committee woukd leave the benchmark interest rate-the Monetary Policy Rate (MPR)- unchanged at 12.5 per cent “in order to further consolidate measures on its several measures put in place to lift Nigeria out of the anticipated recession in Q3 2020 and to restore the country’s output growth to the pre-COVID-19 levels.”

 

The analysts said: “Amid the implementation of the new service- reflective electricity tariff, coupled with the full deregulation of the downstream sector, we expect inflation to further increase in September 2020 and in preparation of the oncoming festive season.

 

The rising costpush inflation in the country, despite the economy running below potential (especially now, due to COVID-19), dictates that Nigeria needs to do more to boost productivity while also  releasing the chokehold of insecurity across the country.

 

“Meanwhile, we do not see the MPC jacking up the policy rate in the new week given that a reversal in its expansionary policy may further hamper demand-driven growth – which is already in negative territory at minus 6.10 per cent.

 

Hence, we expect the Monetary Committee to hold MPR at 12.50 per cent in order to further consolidate on its several measures put in place to lift Nigeria out of the anticipated recession in Q3’20 and to restore the country’s output growth to the pre-COVID-19 levels.

 

 

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