TSA: CBN may reduce CRR as MPC meets

CBN Governor, Mr. Godwin Emefiele

As the Monetary Policy Committee of the Central Bank of Nigeria commences its once-in-two months meeting today (Monday) to review the state of the economy and take key economic decisions, economists and analysts have said it may leave key economic rates unchanged.

The economists also predicted that the MPC might reduce the Cash Reserve Ratio on private and public sector deposits from 31 per cent in the light of the tight liquidity condition in the banking sector as a result of the implementation of the Treasury Single Account policy.

The two-day meeting was held last in July when the committee unanimously decided to retain the Monetary Policy Rate at 13 per cent with a corridor of +/- 200 basis points and the CRR on private and public sector deposits at 31 per cent.

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Economists at Dunn Loren Merrifield Asset Management and Research Company, a research and investment advisory firm, highlighted the expectation that the MPR might remain on hold, noting that further tightening would be counterproductive.

The DLM economists, in a bulletin released on Sunday, said, “In our view, the decline in external reserves presents the challenge being faced by the central bank to conserve the nation’s dwindling foreign reserves in a bid to strengthen the fiscal buffers.

“We highlight that the weaker outlook for oil prices, slow global output expansion, expected capital outflow and negative investor sentiments in response to the announcement by JPMorgan to phase out Nigerian government bonds from its Government Bond Index for Emerging Markets by the end of October remain key risks to reserve accretion in the short-to-medium term.

“Based on our view that fiscal and monetary policies should support stronger economic growth in the medium-to-long term, we do not see an increase in the MPR as this would further contract the Gross Domestic Product growth, which currently stands at an all-time low.

“Our position is further supported by the fact that the committee acknowledged that monetary policy is gradually approaching the limits of tightening and we believe that an increase in the MPR will be counterproductive at this point. We are of the view that prices and output are largely dependent on fiscal and structural policies rather than on monetary position.