Monetary Policy | |
Monetary Policy | |
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Tuesday, January 19, 2021 / 10:27 AM / by United Capital Research / Header Image Credit: Vanguard News/Ecographics
As such, the
MPR was slashed by 200bps to 11.5% and the asymmetric corridor around the MPR
was revised to +100/-700bps. The Cash Reserves Ratio (CRR) was hiked to 27.5%
while the liquidity ratio was retained at 30.0%.
Notably, the committee insisted that rising inflation was driven
by structural rather than monetary factors. Hence, the committee favoured
supply-side policies of the CBN and lauded the Apex bank's intervention funding
& FX management in the wake of the negative impact of the lockdown
triggered by Covid-19.
Overall, the impact of the MPC's monetary policy stance can be observed
in the net OMO inflow of close to N4.0trn into the system in 2020, compared to
net OMO mop-ups over the last five years.
In view of the first policy meeting of the MPC by
mid-week, we think monetary policy in 2021 will be driven by the need to
urgently stimulate growth in the face of a recession. As such, the MPC/CBN will
sustain its accommodative stance to ensure a V-shaped recovery and avoid a
W-shape. Also we opine that the CBN can still make use of a number of
policy tools within its disposal to guide its accommodative tone.
For instance, the CBN retains discretion over the
rollover of the N4.1tn special bills which it could use to bolster
liquidity should it intend to remain accommodative. That said, we think the CBN
may revert to a hawkish tone later in the year should economic activities
recover considerably considering galloping inflation and weak FX inflows from
FPIs.
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