CBN’s fear for FX volatility may compel MPC to leave parameters unchanged—BHIU
As the Central Bank of Nigeria (CBN) begins its second Monetary Policy Committee (MPC) meeting this week, Business Hilights Intelligence Unit (BHIU), an independent economic research arm of Business Hilights publications has disclosed that it expects that majority of its members to elect to leave policy parameters unchanged.
According to the head of the Unit, Dr Chinedu Ntigbu, “Our view is based on the CBN’s intolerance or fears for FX volatility, which has remained at the core of its policy thrust”. “Clearly, the troika of (1) the recent surge in foreign portfolio inflows, (2) naira stability, and (3) descent in headline inflation, should have ordinarily ignited an accommodative policy stance. BHIU further averred that “We expect the MPC to remain cautiously optimistic in a bid to consolidate on currency gains thus far. Farther out, given (1) the still shaky crude oil price outlook, (2) elevated maturity profile in the latter part of the year and its implication on the naira, and (3) perceived upside risk to inflation, we see lower chances of a rate cut over the rest of the year.
On Foreign exchange dynamics, Business Hilights recalls that “For the third consecutive week, the CBN recorded another FX reserve build-up. Specifically, the apex bank recorded foreign reserve accretion of USD456.67 million w/w to USD43.51 billion”.
“Meanwhile, in the face of CBN’s pause on its weekly FX intervention, naira depreciated marginally by 0.07% to USD360.43 at the I&E window and by 0.28% to NGN360 and in the parallel segment respectively. Elsewhere, total turnover at the I&E window moderated by 26.54% to USD1.20 billion with 58.18% of trades executed within the NGN360-369/USD band. “Similar to the spot market, the naira depreciated across all contracts at the forwards market — 1-month (-0.12% to NGN362.78), 3-month (-0.21% to NGN369.78), 6-month (-0.06% to NGN381.53), and 1-year (-0.41% to NGN403.32).
“Looking ahead, we expect the naira to remain firm in the medium to short term, as the still elevated crude price rally continues to underpin higher oil receipts, thereby supporting the CBN’s continued intervention. In addition, the recent deluge of portfolio inflow further supports our view of currency stability,” BHIU noted.
