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A ‘’Hold’’ decision in view as CBN’s Monetary Policy Committee sits for its second set of meetings of the year


By Audrey Lotechukwu

MON 22 MARCH, 2021-theGBJournal-The consensus among analysts is that the Monetary Policy Committee (MPC) will keep the monetary policy parameters unchanged and affirm the continued adoption of its secondary “toolbox” in addressing the imbalance in the external account and restoring macroeconomic stability.

The rational for this thinking is the positive GDP outturn in Q4-20, which saw Nigeria exit recession after six quarters of growth draught.

The economy the domestic economy exited the COVID-19 induced recession in Q4-20, with real GDP growth growing marginally by 0.11% y/y (Q3-20: -3.62% y/y). The increase was primarily driven by the (1) agricultural sector (+3.42% y/y vs Q3-20: +1.39% y/y), which had its highest growth since Q4-17 (+4.23% y/y), (2) robust growth in the telecoms sector (+17.64% y/y vs Q3-20: +17.36% y/y) and (3) growth in the real estate sector (+2.81% y/y vs Q3-20: -13.40% y/y).

‘’This will bring some comfort to the Committee that the knock-on effects of monetary and fiscal responses to the pandemic are gradually beginning to yield results,’’ Cordros Research analysts said in a note to theGBJournal. ‘’Nonetheless, we think the growth’s fragility will remain a significant concern for the Committee.’’

Cordros said they expect the Committee to reiterate that a hike in interest rate will oppose its current growth mandate, given the adverse impact on the rising cost of borrowing for households, businesses and the government.

This is despite domestic inflationary pressures which has show no signs of relenting, rising from 15.75% in December 2020 to 17.33% as of February 2021 – the highest in four years. The twin issues of security and FX liquidity challenges, also looms large.

The MPC holds 22nd and 23rd of March 2021 and the Committee is expected, will review the domestic and external macroeconomic conditions and financial markets developments since its last meeting in January and provide forward guidance on how it intends to balance the competing goals of price and exchange rate stability.

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