MPC Members Looking Beyond the Virus


Wednesday, April 29, 2020 /09:25 AM / by FBNQuest Research / Header Image Credit: Channelstv

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The last meeting of the monetary policy committee was held in late March. The CBN had already unveiled its package of measures, which it costed at N3.5trn, but Covid-19 had not yet hit Nigeria on any scale (one person had died of the virus at the time). It also preceded by a few weeks the IMF's World Economic Outlook that projected global recession this year. The related personal statements are interesting for the light they throw on members' expectations. They cannot be accused of optimism about Nigeria's prospects in these circumstances.


One member produced a policy wish-list for the government. The FGN has since delivered on two wishes (postponement of the electricity tariff review and compensation in some form for the most vulnerable in society) and not moved on two others (a freezing of the hike in standard rate VAT and a cut in import tariffs on key inputs).


Two members suggested a Covid-19 relief fund to focus on the informal sector. The funds would be supplied by the private sector, and indeed a similar structure has since been established.


Members looked for the opportunities ahead. One hoped that the low crude oil price would finally bring fuel price deregulation and the accompanying fiscal relief. Another hoped that post-virus Nigeria would boast a far larger processed food sector, an expansion of ICT and a transformation of personal healthcare. Others sought to "reposition the economy" and diversify.


On the fiscal side we found a figure of N4.84trn for the FGN's deficit last year, of which N910bn was covered by domestic borrowing and the balance of N3.93trn through "possible inflationary monetary financing".

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The statements trumpeted the success of the CBN's adjustments to its loan-to-deposit ratio. One noted that its stress testing found the banking industry to be resilient in the face of the adjustments, while admitting that the picture was less rosy with its severe stress testing.


There is relatively little comment in the statements about the exchange rate beyond the obvious point that pressures had multiplied. One prominent member observed that the pressures reflected the softening oil price as well as the "need to unify the exchange rate across all segments".


As in the previous set of personal statements, we came across the view that headline inflation above 12.0% y/y somehow became "anti-growth". Three members expressed this opinion.


One member, having noted the rush of offshore investors to leave EMs such as Nigeria for said safe havens such as gold, floated the idea that the authorities should review its thinking on holdings of the yellow metal.

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