Monetary Policy | |
Monetary Policy | |
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Wednesday, January 06, 2021 / 09:04 AM
/ By FBNQuest Research / Header Image Credit: Central Bank of Nigeria
Since the monetary policy committee (MPC) voted unanimously in late November to leave its policy rate and other parameters unchanged, we should not be surprised to find a good deal of common ground in members' personal statements, which the CBN distributed one week before Christmas. The committee settled for its favoured wait-and-see stance, one member adamant that it had few monetary instruments still to deploy. Among the ten statements, we see a shared view that the national accounts for Q3 '20 provide pointers for Nigeria's exit from recession, that the health of the banking industry continues to improve, and that both the CBN's loan-to-deposit ratio (LDR) and its development finance initiatives have contributed substantially to the country's perceived economic resilience.
GDP contraction slowed from -6.1% to
-3.6% y/y in Q3 '20. One member notes that 17 of 46 sectors expanded in Q3,
compared with 13 the previous quarter, and another that the latest data point
to a likely V-shaped recovery. Our analysis would have added that more
Nigerians were able to leave their houses, make journeys, and go to offices and
factories in Q3 because of the easing of restrictions.
Related Link: Personal
Statements By The MPC Members At The 133 MPC Meeting of Nov 23-24, 2020
Members draw comfort from the report
they received on the banking industry. The ratio for NPLs declined to 5.7% at
end-October, compared with 6.1% at end-August and 6.6% at end-Oct '19. One
member fairly observes that the CBN's decision to allow banks to restructure
their loan portfolios has played its part in this improvement. The liquidity
ratio of 35.6% at end-October was well above the threshold. Another comments
that the ratios for returns on equity and on assets compare favourably with
peer countries.
The LDR has helped to drive an
increase in gross credit from deposit money banks of NGN290bn between
end-August and 13 November to NGN19.54trn. The rise amounts to close to NGN4trn
since May '19. The additional lending has mostly benefited job and wealth
creating sectors. Without the CBN's tougher stance and its measures to enforce
compliance, there is little doubt in our view that the increase would have been
substantially lower.
The CBN's role in development finance
is as popular as ever with committee members. One insists that its
interventions halved the rate of contraction of both construction and
manufacturing in Q3 '20, and a second that they will help to drive a turnaround
in the economy in H2 '21. They want an expansion of the role, notably for the
popular Targeted Credit Facility that is designed for households and
MSMEs.
On inflation, we learn that the
increase in the average price of farm produce slowed from 1.16% in September to
0.75% in October. The subtext is that food price inflation is driven more by
processed than by fresh products. CBN staff forecasts, however, indicate higher
core and headline rates in the forthcoming reports for December and
January.
We take issue with the statement of
one member that the strength of the local stock market is a mark of investor
trust in monetary and fiscal policy. Rather, the driver has been changes to the
asset allocation of domestic institutions, which in turn are the consequence of
the crashing of fixed income yields.
There is more discussion of fx policy
than usual, which is the result of the then widening gap between the rates at
the Investors' and Exporters' window, and at the bureaux de change. Two members
suggest that the policy focus could be shifted from the management of demand
for fx to the location of new sources of supply.
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