MPC To Meet On Monday In The Wake Of Coronavirus

The CBK Monetary Policy Committee (MPC) is set to meet on Monday 23^rd March 2020 to determine the course of the key policy rate, the Central Bank Rate (CBR).

The committee last met on January 27^th, 2020 and cut the CBR by 25bps to 8.25 percent, citing (i) the economy operating below its potential level, coupled with (ii) the potential tightening of fiscal policy.

Further, the committee noted that Private Sector Credit Growth (PSCG) closed 2019 at 7.1% but remained optimistic of a gradual increase in 2020 on the back of the interest rate cap repeal.

This sentiment, however, is likely to have changed in the near term, with Coronavirus fears slowing business activity and subsequently, the repercussions on economic growth.

While the MPC will be keen to maintain price stability with inflation and currency under pressure, growth prospects are waning and we believe this will be the focus of discussion.

“We suspect PSCG remains low as per data to be released by the MPC on the day of the meeting, coupled with the slowdown in business activity, which will have a consequence on the final rate cut decision,” said analysts from Genghis Capital.

In conclusion, analysts anticipate the MPC to cut the benchmark rate by 75bps to 7.5 percent in the March meeting on the back of mounting global risks.

“Despite this, we expect any decision on a rate cut will not bear the intended consequence on the economy as monetary policy easing is unlikely to solve a complication brought about by a healthcare crisis.”

On Sunday, the US Fed cut its benchmark rate by 100bps to an interest rate range between o.00 percent and 0.25 percent in addition to expressing an intention to buy USD 700Bn in treasury and mortgage-backed securities.

This move failed to calm jittery investors, depicting the inadequacy of using aggressive monetary policies which are primarily pro-‘demand’ to cure ‘supply’ malaise. This has paved the way for other economies to follow suit with policy rate cuts between 50 and 75bps in parts of Asia and expectations of rate cuts from various central banks in coming meetings.

While the MPC will be keen to maintain price stability with inflation and currency under pressure, growth prospects are waning and we believe this will be the focus of discussion.