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NIGERIA MONETARY POLICY COMMITTEE- No rate action yet

In its second meeting of the year, the Monetary Policy Committee maintained its accommodative stance, retaining the Monetary Policy Rate (MPR) at 11.5%, asymmetric corridor at +100/-700bps around the MPR, Cash Reserve Ratio (CRR) and Liquidity ratio at 27.5% and 30.0% respectively.

On the brink of fragile recovery On the global front, the Committee noted the continued improvement in global economic conditions amid ample fiscal stimulus and ultra-loose monetary policy. However, the relatively low availability of vaccines in emerging and developing economies compared to advanced economies could create room for uneven recovery from the pandemic-induced recession, especially as risks emerge from vaccine efficacy and newer strains of the virus.  Following the Fed’s decision to sustain its interest rates at zero, as well as its asset purchase programme, the fears of risk aversion in emerging markets has waned despite rising US Treasury yields. By implication, emerging markets like Nigeria could have reason to cheer, particularly for Africa, which benefitted from recoveries in commodity prices and more recently, vaccine rollouts.

Price stability to return to the fore Following the surprise exit from the recession, further policy coordination is required to strengthen economic recovery. Given the sub 1% growth outcome in Q4’20, the Monetary Policy Committee could pay close attention to the outcome of GDP results for Q1’21 to confirm Nigeria’s V-shaped recovery path. We recall that COVID-19 restrictions came into force at the end of Q1’20; thus, the pandemic left a negligible imprint on the economy in Q1’20. This could limit economic recovery in Q1’21, informing our weaker growth expectation of 0.75% y/y in Q1’21. As a result, monetary policy stance needs to remain accommodative as Nigeria could record its strongest output growth for the year in Q2’21. Thus, both monetary and fiscal authorities need to reflate consumption and investment demand by expansionary macroeconomic policies to solidify recovery.