Jan 26 (Lagos) - A few minutes ago, the Central Bank of Nigeria (CBN) concluded its two day policy meeting retaining all policy parameters in line with our expectation.
Monetary Policy Rate (MPR) - 11%.
Cash Reserve Ratio (CRR) - 20%, with asymmetric corridor of +2% and -7% around the MPR.
Liquidity ratio at 30%.
In leaving monetary controls unchanged, the CBN governor cited the need to allow more time to assess the impact of the easing which commenced at the November 2015 MPC meeting.
Interestingly, there was no vote on the currency. The committee only reiterated its resolve to ensure currency stability. During the Q&A session, the CBN governor expressed little worry on the widening parallel market FX spread, citing his oft stated claim about the negligible size of the parallel market. He argued that restrictions on certain import items were yielding results as domestic producers of these goods have recorded increased sales since the policy.
Indeed, the muted response on currency does not come as surprise, as we noted in our note, out today, that continued fiscal resistance should see the monetary authorities remain reluctant towards adjusting the current naira peg. Perhaps more interestingly, the apex bank governor noted that a framework to attract higher autonomous FX supply was being designed.
This is quite close to the idea that the analysts at Asset & Resource Management Ltd have been reiterating for some time now, that the CBN need not retain the moral hazard scenario engendered by its attempts to remain the main supplier of forex. Indeed, by reforming market architecture, much can be done with current level of autonomous flows without bothering to attract more.
Overall, analysts at Asset & Resource Management Ltd in Ikoyi find the governor’s comment very interesting and will be closely watching for further developments on this front.
· Monetary policy to remain accommodative to support fiscal stance.
· No Naira devaluation in the near term.
· Parallel market premiums to subsist.
· Introduction of more measures to ease FX liquidity.