MPC – Think twice or you sink!
In an unexpected move, Nigeria’s MPC decided to keep its benchmark interest rate unchanged at 13.5%p.a. Analysts were almost unanimous in their opinion that the committee would cut rates by 50 to 100bps as a way of complimenting the fiscal stimulus required to avert a recession or at best reduce its potential impact.
The market reading of this policy stance is that the CBN is tacitly accepting the limitations of monetary policy tools in times of macro-economic turbulence. It also is trading off some of its interest rate ammunition to reduce a continued hemorrhage of FPIs (hot money) from an external reserves position that is continuously depleting.
Our view of the duration of crisis is mild to moderate with a possible increase in the number of infected in March and April before containment and reduction in the month of May. We are of the opinion that there is a 45% probability of negative GDP growth in Q1 and Q2 before a mild recovery in Q3.
In the link below, you will see the slides of a discussion by Bismarck Rewane on Channels TV News at 10pm yesterday in which he reviewed the immediate and wider implications of the pandemic on the Nigerian economy and the markets.