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How Markets Reacted To CBN’s Retention Of Rates

By Emmanuel Aziken with Agency reports



CBN's retention of rates

Financial market operators have welcomed the decision of the Monetary Policy Committee, MPC to retain key market rates at the committee’s first meeting of the year. The wisdom in the Central Bank of Nigeria, CBN’s retention of rates is expected to help drive the broad picture of nudging the economy out of recession in the second quarter.

Formal ratification of the markets’ approval of the largely expected decision is to be made at the end of today when key rates in the money markets and the stock market are reappraised.

Nevertheless institutional bodies in the financial markets have given their approval.

Governor Godwin Emefiele and members of the Central Bank of Nigeria, CBN MPC were especially tested in finding a balance between the inflationary pressures in the economy and giving a boost to the COVID-19 depressed the economy.

At the end, the MPC decided to strike a balance in leaving the rates at levels set at the last MPC meeting with the fear that spurring growth in the face of the strong inflationary pressures the apex bank is battling could further worsen the economy.

The MPC was also guided by the fact that it had on the side been spurring growth through institutional interventions through the CBN aided grants such as MSME loans being given out at single digit figures.

GWG reports that the Governor Emefiele led CBN has more than any other CBN board been involved in boosting the economy through direct interventions to MSMEs.

GWG had reported that the MPC retained MPR at 11.5 per cent, the asymmetric corridor around the MPR at +100/-700bps, Cash Reserves Ratio at 27.5 per cent, while liquidity ratio was also retained at 30.0 per cent.

Among those who welcomed the CBN’s retention of rates was the Association of Capital Market Academics of Nigeria (ACMAN).

ACMAN President, Prof. Uche Uwaleke, disclosed in an interview with the News Agency of Nigeria (NAN) lauded rates retention said the MPC unanimous decision was consistent with market consensus.

“The MPC did not disappoint. Their unanimous decision is consistent with market consensus and expectations.

“By doing so, the Central Bank of Nigeria will have some more time to monitor macroeconomic response to all its interventions in the wake of COVID-19 pandemic,” he said.

Uwaleke also a Professor of Capital Market at the Nasarawa State University Keffi, said that rates retention was due to rising inflation and stabilisation of the exchange rate.

“As usual, the choices before the MPC was whether to reduce, increase or hold the rates.

“While on the one hand, a rate cut appeared justified by need for the CBN to support economic recovery efforts of the government.

“On the other hand, the need to stabilise exchange rate as well as tackle the rising inflation favoured tightening monetary policy.

“This presented a dilemma which the MPC rightly managed by maintaining the status quo and holding the rates in a bid to strike a balance, between the two seemingly diametrically opposing sides of enabling output growth and curbing rising inflation,” Uwaleke said.

Also, speaking on the CBN’s retention of rate, Mr Ambrose Omordion, the Chief Operating Officer, InvestData Ltd., said the rates were retained in order not to short live the seeming economic recovery.

Omordion said that the development would further support the growth of the equity market ahead of 2020 earnings season.

He noted that the prevailing negative returns in the fixed income market would make investors to seek for higher returns at equity market until yields start improving.

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