Friday, January 03, 2020 /08:59 AM / By
FBNQuest Research / Header Image Credit: Youtube
Today we turn our attention to the latest personal statements of the monetary policy committee (MPC) which were released recently. Broadly speaking, the committee members'views were aligned as the verdict of the committee was unanimous. The general theme across each statement was that the global landscape remains fragile and rising uncertainties continue to dampen prospects. Against the backdrop of global uncertainties and a slowing global economy, there is a growing trend towards monetary accommodation in both the advanced economies and some emerging markets.
One member noted that in light of this monetary accommodation stance, Nigeria could attract more capital inflows to boost its reserves and maintain exchange rate stability. However, a conducive investment environment along with an appropriate monetary policy stance among other things are required to achieve this.
The recent upward trend observed in the headline inflation featured in each member's statement. It is assumed that this trend will be short-lived given that it is largely driven by the land border closure and a rise in demand due to the festive season. However, the latest inflation figures indicate further movement away from the CBN's implicit inflation target of 6-9 per cent.
Members were pleased with regards to private-sector credit extension. Data available to the committee suggest that the impact of the credit constraint on the economy was alleviating, primarily due to the differentiated cash reserve requirement (DCRR) and the increase to the minimum loan-to-deposit (LDR) ratio by the CBN during the year.
Two members disclosed that between January and October 2019, gross credit expanded by over N1.0trn. The bulk of the increase took place between June and October. The sectors with the largest increases in credit allocation were agriculture, manufacturing, consumer credit and general commerce.
We note from one of the personal statements that NPLs ratio reduced to 6.6% as at end-October, the lowest in over four years.
The positive signals from the rise in credit allocation are laudable. However, the economy is still fragile. One member advised that the FGN should consider alternative funding of government capital projects, using private sector funding to reduce pressure on the national budget.
CBN's in-house forecasts for Q4 2019 GDP growth is 2.38%, marginally higher than the 2.34% reported in October. Our expectation for the same indicator is 2.5% in Q4 2019.
Based on the tone of each statement, we doubt the committee will be in any rush to change its stance at its next meeting scheduled to hold later this month.