MPC: No Change With or Without a Meeting

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Monday, January 22, 2018 11.26AM/ FBNQuest Research 

The monetary policy committee (MPC) would normally be holding its latest meeting today and tomorrow in Abuja. However, the Senate has declined to confirm the presidency’s appointments for a new deputy governor of the CBN and members of the committee. 

The meeting is therefore not expected to go ahead although it appears in the calendar for 2018 on the central bank’s website. There is reputational damage to brand Nigeria as a result of what we will diplomatically term a procedural stand-off. Incidentally, we did not expect a change in stance.  

If the MPC has one shared agenda, it is the fight against inflation. The December report probably came as a welcome surprise (Good Morning Nigeria, 17 January 2018). The headline rate slowed from 15.9% to 15.4% y/y. 

The committee will have noted the modest decline in core inflation, to 12.1% y/y in December. The more striking move, however, was the fall in food price inflation, from 20.3% to 19.4% y/y. Stubbornly high food prices are the consequence of supply-side factors beyond the CBN/MPC’s control. 

The committee no longer shares the in-house inflation expectations in its communique or in the statements. Our own projections have the headline rate down to around 11.0% y/y by mid-2018 on positive base effects before picking up a little in H2. The committee has not altered its stance since July 2016 but we now see easing ahead in March, failing which May this year.  

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On this assumption of no change, the borrowing rate for banks at the CBN ‘s SLF remains 16.00% (the policy rate + 200bps within the asymmetric corridor) while the FGN can borrow at +/- 13.50% at the bond auctions operated by the DMO. This is an unusual position in any market but not a reason to change monetary policy.  

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