MPC Likely to Leave its Stance Unchanged


Tuesday, November 22, 2016 9:58 AM /FBNQuest Research

The monetary policy committee (MPC) closes its latest meeting in Abuja today. We see an unchanged stance. The committee is faced with an economy which has contracted y/y for three successive quarters and inflation which has accelerated for nine months in a row on the same basis.

It has often argued that both negative developments have been largely driven by legacy and structural factors beyond its control. In the cases of pipeline sabotage and electricity tariff rises, for example, we agree.

Almost as long as we can remember, the committee has called for the harmonisation of monetary and fiscal policy.

At the same time, it likes to stress the limitations on the impact of its monetary policy. A hike would be the classic response to the surge in inflation, and would encourage savings.


However, it would add to the FGN’s borrowing costs and very likely slow the recovery from recession. The committee hiked by 200bps to 14.00% in July in a bid to attract departed offshore portfolio investors but the tightening made little impact.


A cut in the policy rate would expose what one member has termed the “oligopolistic” structure of the banks and would not be fully shared with their customers. The CBN governor, Godwin Emefiele, said in Lagos on Saturday that the committee also had to look at rate decisions from the perspective of the lender. This was a reference to banks’ high operational costs, notably power, security and infrastructure.


The MPC’s idea of harmonisation is that it has borne the responsibility for creating macroeconomic order and that the fiscal side must now raise its game: A wish list could include a boost to capital spending, a programme of external concessional borrowing and the more timely passage of budgets.


Given its view that its own ammunition is practically exhausted, we do not see  a change in the policy rate until the expected marked decline in inflation next year on positive base effects, We estimate the headline rate at 15.1% y/y in March and 11.3% in June.


On exchange-rate policy, the MPC may well call for time for the liberalisation in June to have the desired impact.


Finally, we note a disappointing trend in the publication of members’ personal statements. We do not see why these explanations of voting decisions are sometimes released as late as the first day of the subsequent meeting of the MPC.


The statements should be a useful transmission mechanism for the market and the delays mark a step away from best practice.

Related News

1.       MPC Unlikely to Make Any Change

2.      Access Bank Plc Expects MPC to Retain MPR at 14%

3.      Emefiele's prognosis on the Nigerian Economy and Policy options

4.      Nigeria's GDP Declines to -2.24% in Q3'16 from -2.06% in Q2'16; Lower by 0.18%

5.      MPC May Hold Policy Levers But FX Change Required

6.      Nigeria's GDP Declines to -2.24% in Q3'16 from -2.06% in Q2'16; Lower by 0.18%

7.      Inflation Growth Defies All CBN MPC Decisions

8.     Rising Inflation Rate - Will MPC Change Stance?

9.      5 Key Observations on the Nigerian Economy by Fitch (BMI)

10.  Still Waiting for Policy Direction

11.   MPC Neutral Stance May Be Accommodative

12.  CBN Communiqu' No. 109 of the MPC Meeting - Sep 19-20, 2016

13.  August CPI at 17.6% - MPC between the devil and the deep blue sea

14.  Temptation of the MPC to hike again

15.   Do Nothing - An Option: MPC Considerations and Policy Options

16.  Ahead of MPC Meeting - MPC in a Dilemma …Growth Vs Price Stability

17.   Monetary Policy Committee Decision Review - Access Bank Plc

18.  Personal Statements by Members at the 108 MPC Meeting of July 25 and 26 2016


Related News