MPC – Going with the flow

Dear Subscriber,

Contrary to analysts’ expectations, the MPC voted 7:3 to cut the benchmark interest rate (MPR) by 100bps to 12.5%pa. This is the first rate cut since March 2019.

At a time of macroeconomic challenges, the Committee emphasized the need for an optimal solution to fight rising inflation and waning growth. The decision to go with the flow in the adoption of an accommodative stance was found to be perplexing by analysts who believed that a wait and see or tightening approach was more appropriate because the potency of inflation was more debilitating than the downside of the recession.

The good news is that if history is anything to go by, the rate cut will have a muted impact on markets and may be widely ignored by investors who are more likely to be scrambling for forex. Growth is still projected to slide into negative territory in Q2 and Q3 with exacerbated inflationary pressures.

However, recovery of the economy could be as early as Q1’2021 if policy makers demonstrate economic discipline and make tough decisions.

In the slides, Bismarck Rewane reviewed the immediate and wider implications of the pandemic on the Nigerian economy and the markets on Channels TV News at 10pm yesterday

Do enjoy your read…