SWITZERLAND, JULY 22 – The Monetary Policy Committee (MPC) of the Central Bank of Nigeria holds its latest meeting today and tomorrow in Abuja.
The CBN uses the Monetary policy rate as a tool to keep inflation low and price stable. After every MPC meeting which takes place quarterly, a new interest rate is released.
The last time the MPC met was on the 20th and 21st of May 2019, amidst uncertainties in the global financial, economic and political environments. All Eleven (11) members of the Committee were present.
The economy awaits the new interest rate as the MPC holds its deliberations..
The change in direction by the US Federal Reserve has proved a welcome boost to emerging/frontier bond markets. For foreign portfolio investors (FPIs), Nigeria offers the additional advantages of high returns and a stable fx rate at the investors’ and exporters’ window (NAFEX).
Despite this change in stance by the Fed, which is likely to cut its benchmark rate as early as this week, the MPC could point to global trade tensions as a reason to embrace caution. It is unclear where the ‘truce’ between the US and Chinese presidents at the recent G20 meeting in Japan will lead. Nigerian policymakers will be alert to any downside for China, which is its leading source of imports as well as a sizeable investor.
The MPC argues that high returns on naira debt instruments are essential to keep FPIs locked into local markets, and thereby underpin official reserves and the exchange rate. We could debate whether a fall of, say, 100bps, in those returns would materially affect investor sentiment, and indeed the extent to which the monetary policy rate (of 13.50%) guides returns.