Personal Statement of MPC: If It Ain't Broke...


Monday, July 12, 2021 / 09:46 AM / by FBNQuest Research / Header Image Credit: World Reporter/Ecographics

In May, the monetary policy committee (MPC) voted unanimously to leave its policy rate of 11.50% and other parameters unchanged. On reading the personal statements written by members after the meeting, we see a shared message of sorts. The committee's thinking is vindicated because growth is recovering, and inflation is slowing. Both trends would ideally be more rapid but the MPC's policy mix, supported by the acceleration in the CBN's credit interventions in targeted sectors, is the correct one. There are differences in nuance on inflation: one position is to stress the temporary nature of the committee's step away from the mission of price stability, and the opposing view is to argue that a hike is no guarantee of disinflation and would undermine growth by pushing up the cost of credit.  As we approach the next committee meeting in two weeks, the statements suggest that the majority will persevere with what they regard as a winning formula.


In their global commentary the committee generally refers to the latest World Economic Outlook from the IMF for GDP growth projections. One member cites the range of forecasts for the volume growth in global trade this year, which is probably more relevant for the Nigerian macro: 3.4% from UNCTAD, 5.1% from the World Bank, 8.0% from the WTO and 8.4% from the Fund itself.


CBN staff monitor central banks globally. One member notes that, while an accommodative position remained the norm, a handful had started to tighten such as Brazil and Turkey.


The consensus is that the trajectory of inflation has finally turned the corner. One member argues that the CBN's sterilization has played its part, and another that the impact of the harvest will be felt in Q3. The in-house forecast is for a headline rate of 17.4% y/y in July.


The CBN's development finance and the FGN's programmes have together boosted the supply of manufacturing and agricultural goods, and thus supported the downward trend in inflation. The committee makes much of the CBN's role, one member arguing that the pick-up in growth in Q1 '21 can be traced to those sectors where the CBN has intervened. (This analysis overlooks the robust growth of information and communications.)


The call is undoubtedly for more interventions, notably from the targeted credit facility.  It has been answered too, with new interventions rising from NGN150bn in January to NGN234bn in April.


There are growing references to climate change in the statements. One member comments on its impact on domestic food prices. Another cites a CBN staff note projecting a decline in the share of fossil fuels in primary energy demand in Kenya from 85% in 2018 to a range of 20% to 60% in 2030. Our point is less the absurdly wide range for the forecast than the chosen focus of the research staff. 


Members laud the good health of the banking industry. Several note the improvement in the capital adequacy ratio and in the non-performing loans ratio over 12 months from 6.6% to 5.9% in April.  Some members make the valid point that this picture is not entirely accurate because of the CBN's encouragement of forbearance by deposit money banks (DMBs).


One quotes unsourced reports showing that vulnerable borrowers and beneficiaries of the moratorium accounted for 37.7% of the industry's total loan portfolio..


Finally, we note the strong views of the member who identifies manipulation and oligopolist behaviour as drivers of inflation alongside the usually cited supply-side factors. In the retail price of floor tiles, cement and local food products, he argues that market trade associations, distributors and others have together created arbitrary prices. The consumer is the loser.

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