The Monetary policy Committee affirmed to the aberration in the economy space, which is evidence by global, supply chain disruption, rising unemployment trend, volatile crude oil prices, and suppressed demand that have caved in since the pandemic outbreak.
Given the level of domestic economic contraction, persistent elevated inflationary pressure, suppressed government revenue, unabated unemployment and underemployment rate, sinking currency value and foreign reserves, the monetary committee must be head-on for a deviation from its previous stance of holding on to its insensitive monetary policy rate that has been harmful to the economic health of the Nation. While the upward inflationary trend has echoed more economic worries, as such a responsive move by the committee was timely, in view of the delayed reactionary impact of the monetary and fiscal impetus of the government.
The committee deliberation focus on growth stimulation with the objective of spurring supply chain that will inversely subdue the general price level, which will boost aggregate demand. While the rising debt profile of the country amidst stifled revenue generation of the government, was of concern to the committee, this has strengthened the call for prudence with regards to public expenditure, as such other sources of revenue should be explored.
MPC POLICY DIRECTION RESOLUTION
Upon reflecting on the recent fiscal and monetary policy as regards; fuel subsidy removal, heightened electricity tariffs, and currency devaluation that is expected to further spur inflationary pressure in the economy. In view of the aforementioned, a downward adjustment in MPR was required, which will further spur economic activities towards a growth direction, as economic agents are induced to borrow at a lower cost.
Equities Market: This is expected to boost investor’s sentiment towards equity asset class, as it will be expected to offer an improved return on investment, given that MPR decline, will translate to a lower rate offering on Fixed Income instruments, as equity asset class provide a better shield against an inflationary environment.
Fixed Income Market: The pull-through effect of rate contraction will rain in a low rate regime within the fixed income spectrum which may induce investors sentiment towards other asset classes that offer suiting relief against inflationary pressure that also offer greater return potentials.