Heavy Election Spendings: MPC Likely To Hold Interest Rate

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By ‘Dotun Akintomide

Concerned by the likely impact of the 2019 election spendings on the economy, members of the Monetary Policy Committee (MPC) are unlikely to ease monetary policies during their two-day meeting starting today in Abuja, The New Diplomat has learnt.

This comes as the inflation rate dropped to 12.48 per cent in March to below the Central Bank of Nigeria’s benchmark Monetary Policy Rate (MPR) of 14 per cent.

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Committee members are expected to also take into consideration the move by the federal government to raise the minimum wage of civil servants in the country and its attendant effects on inflation.

The MPC has consistently held that inflation was above MPR as one of the reasons for its restrictive monetary policy stance.

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Albeit, with political parties expected to kick off their campaigns in earnest by the second half of this year, spending by politicians is certain to have an impact on the economy.

It was gathered that the MPC members, would also factor the impact of increased money supply on the foreign exchange market making it unlikely for CBN to change its tight monetary stance until inflation begins to move into single-digit territory.

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At its last meeting in April, the MPC had maintained the MPR at 14 per cent with the asymmetric corridor at +200 and -500 basis points around the MPR and retained the Cash Reserve Requirement (CRR) and Liquidity Ratio (LR) at 22.5 per cent and 30 per cent respectively.

Another factor likely to come up for discussion at the MPC meeting includes the Purchasing Managers’ Index (PMI), which last month showed an expansion, just as increased capital inflows and favourable developments in the crude oil market continued to have a positive impact on the economy.

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Oil prices hit $80 per barrel last week – their highest since June 2014 – against the backdrop of America’s exit from the Iran nuclear deal, falling oil inventories, and the impact of OPEC’s production cut deal.

Notwithstanding the positives of higher oil prices on Nigeria’s foreign reserves and current account balance, they also come with the risk of ballooning petrol subsidies.

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However, as the MPC commences its meeting, the NBS is also due to release first quarter GDP numbers, which analysts forecast would show continued expansion.

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