FSDH Research believes the recent developments in the Nigerian economy and the short-term outlook of the economy favour monetary policy easing, which is required to stimulate economic growth and credit creation.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will hold its second meeting for the year 2018 on Monday 21 (today) and Tuesday 22 May, 2018.
The monetary policy easing may be in the form of an adjustment to the Monetary Policy Rate (MPR) or an adjustment to the Cash Reserve Requirement (CRR), FSDH stated.
At its April 2018 meeting, the MPC maintained the MPR at 14 per cent, with the asymmetric corridor at +200 and -500 basis points around the MPR; retained the CRR and Liquidity Ratio at 22.50 per cent and 30 per cent, respectively.
The increased capital inflows and favourable developments in the crude oil market continue to have a positive impact on the future growth path of the Nigerian economy. The positive recovery in the economy should drive demand for credit both in the manufacturing and non-manufacturing sectors.
FSDH Research expects a Gross Domestic Product (GDP) growth rate of 3.55 per cent in Q1 2018.
It expects the positive domestic and external environment to further lead to external reserves accretion in the short-term. This development should provide further stability for the foreign exchange rate.
The yields on the fixed income securities in Nigeria have declined sharply in the last few months despite the hold in the MPR.
The major drivers of the drop in yields are: the strategy of the Debt Management Office (DMO) to restructure the domestic debt portfolio of the FGN in favour of long-term debt, the drop in the inflation rate and other positive developments within the macroeconomic environment
The growth in money supply as at April 2018 was lower than the CBN’s target for the year. The monetary policy stance of the CBN is predicated on achieving price stability in domestic prices and foreign exchange rate. The objective has been responsible for the tight monetary policy stance so far.