The measures were unveiled on Tuesday following days of deliberations by the bank’s Montary Policy Committee (MPC).
Rand Merchant Bank described the string of measures, premised on injecting credit into potential employment-generating sectors of the economy, as “unconventional” and “largely unexpected.”
“On the face of it, a 200bp (balance of payments) reduction in the policy rate paired with a 5 percent decline in the cash reserve requirement would seem prudent in light of Nigeria’s weakening fundamentals,” RMB pointed out.
“However, it does little to address the possibility of a balance of payments crisis which would in fact demand a tighter monetary policy stance. The CBN afforded the topic very little airtime in its MPC
announcement, skimming over the sustained deceleration in Nigeria’s exports and waning portfolio demand.”
RMB noted the central bank remained “immovable” on its foreign exchange stance (N1=$0,005), deeming minimal movements in the official interbank market as an indication of relative naira stability.
“Yet the continued divergence between the quoted and parallel naira rates represents a severe mismatch between US dollar supply and demand, crippling local corporates that are in desperate need of foreign exchange.”
The need for credit to fuel corporate expansion is limited by the fact that many manufacturing concerns cannot fund the purchases of final intermediary goods which are essential to their productions process, the market watcher said.
“We therefore remain sceptical of the CBN’s position.”
RMB said as the apex bank’s reaction function was clearly biased toward real GDP growth, it made little allowance for mounting inflationary or foreign exchange pressures.
“The measures undertaken at this particular meeting could prove to be a policy mistake.”
– CAJ News