The team of analysts also hinged their position on previous position of the committee, including wariness to easing when it had argued that “on the rare occasions it has cut the policy rate, the beneficiaries of the additional liquidity were not productive sectors such as agriculture but traders with substantial fx needs.” FBQ quest said while this position seems plausible, it was rather, “a reflection on bank supervision and regulation.”
The team noted that supply-side constraints remain extensive, including power, fuel and some food stuffs, which it says appear anecdotal. “The medium-term outlook for inflation is reasonable, however, and in these circumstances a rate cut would also come as a surprise,” said FBNQuest.
On exchange-rate, the team said it expects plenty of commentary. “The CBN’s step-up in its fx interventions has had some positive results. The naira has appreciated on the parallel market and manufacturers are enjoying improved access to imported raw materials. Retail sentiment has been lifted and there have been stirrings from a few offshore portfolio investors. The committee may conclude that some fine-tuning is required. We question how far the CBN can expand its interventions without the depletion of reserves that it is determined to avoid.”
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Frontpage September 2, 2019