‘MPC Decision Will Not Affect Market Pressure’ | Monetary Policy Committee

Although the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) left rates unchanged at the end of its meeting yesterday, analysts say the decision to maintain status quo will likely not have any effect on the current state of the market.

According to the chief executive of Financial Derivatives Company Limited, Mr Bismarck Rewane, “The jitters are likely to continue in view of the apparent shallowness of the foreign exchange market in Nigeria and the currency pressure will not abate.”

While noting that the decision to leave all parameters unchanged was not surprising to the market, he said that “any move would have been politically inexpedient and wrongfully misinterpreted as a ploy. Even though there were fears that the CBN might have been pushed into making some changes by external pressures, especially the JP Morgan negative watch index on Nigeria, the MPC stood its ground.

“The status quo decision will not calm the fears and anxieties of traders, investors and market watchers. This is because the divergence between the parallel market and the official midpoint for the naira is N25.5. The segmentation of the markets will remain a recipe for market arbitrage and rent-seeking practice by those bridging the various markets. A difference of this magnitude is a round tripper’s paradise. It will also lead to significant distortions in the allocation of resources,” said Rewane.

On the decision of JP Morgan to place some Federal Government of Nigeria Bonds on a negative watch list, Rewane said, “We expect the CBN to engage the JP Morgan index administrators and provide enough data to allay the fears of illiquidity while simultaneously increasing the net-open position of banks from 0.1 per cent to 0.5 per cent.

“Whilst this might not lead to the removal of the negative watch, it might calm the nerves of investors until the February elections. However, if oil prices decline further to below $45 per barrel and the external reserves drop lower than $33 billion, then we are likely to see a resumption of the selling pressure.”


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