July 2020 MPC Meeting: Policy Parameters Unchanged

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) retained all policy rates at its fourth meeting of the year on July 20, 2020. The Monetary Policy Rate (MPR) was held at 12.5% with the asymmetric corridor at +200bps/-500bps, while the Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) were unchanged at 27.5% and 30.0% respectively. There was weak sentiment towards further easing as 8 of 10 members voted to hold all policy parameters constant, compared with the unanimous vote to ease during the May 2020 meeting.

On its decision to hold, the Committee cited the need to assess the impact of its rate cut in May as well as the stimulus measures deployed to support the economy amid the pandemic. Furthermore, the committee was not optimistic that a cut would reflect in lending rates given current risks and noted that easing could have negative implications for capital mobilization.

Our opinion is unchanged from our previous updates on the MPC meeting as monetary policy remains inconsistent and there is a lack of proper guidance. While the MPR was reduced by 100bps to 12.5% in May 2020 to encourage lending, the CBN continues to constrain bank’s access to cash through frequent CRR debits. And despite the downside risks to investing in the Nigerian financial markets, the Committee offered no guidance on the exchange rate policy of the CBN and the capital controls that have restricted the exit of foreign investors.

However, we have seen progress in the disbursement of CBN’s intervention funds. From 8.2% (₦4.1bn) disbursement rate in May, 98.4% (₦49.2bn) of the ₦50.0bn targeted at households and SMEs has been disbursed as at July 2020. Similarly, 93.6% (₦93.6bn) of the ₦100.0bn healthcare fund has been disbursed from 10.2% in May 2020. There is still poor disbursement of the ₦1.0tn fund established in support of the manufacturing and agriculture sectors although the disbursement rate improved to 15.3% (₦152.9bn) from 9.3% (₦93.2bn) in May. In our opinion, beyond the stimulus measures, providing good guidance on the direction of monetary policy is just as crucial to supporting the economy.