MPC Neutral Stance May Be Accommodative


Thursday, September 22, 2016 8:55am / fdc

The fiscalists were strongly of the view that interest rates should be reduced as a stimulus for economic recovery. They were mostly disappointed with the status quo outcome.

In addition, in recessionary times, a contraction (increase in rates) could have worsened a bad situation. Therefore a middle-ground position of neutrality can be considered as an accommodative stance by default.

In this synopsis of yesterday’s MPC outcome, Bismarck Rewane shares his initial reaction to the controversial events of September 21.

Status Quo = Doing Nothing


Holds benchmark rates at 14% p.a.

Leaves all other variables unchanged

May reduce T/Bill rate at auction tomorrow

Why these decisions

Headline Inflation at 11year high of 17.6% - Increasing

Month on Month price level annualized at 12.8% - Decreasing

Inflation expectations dampening

Why the decision??

External reserves at a 3 year low – $24bn

Segmented and misaligned exchange rate N305/$ (IFEM) - N425/$ (Parallel)

Economy in anaemic mode

Tight Monetary Conditions Stifle Growth

Paradox of thrift

Negative GDP growth (2.42%)

In 3 months CBN mopped up N7.41trn

33.41% of money supply

Choking the economy

Worst thing during a recession

T/Bill rates at 18% p.a.

Effective yield of 21%

Tax free rate of 30% p.a.

Recession Score Card – 9 Red, 3 Amber 

What has been done so far 

Compare with SSA

Outlook – Slow Recovery

Reduce government debt service from 28% to 20% of revenue

Increase capex from 12% to 20%

Reduce nominal and effective interest rate by 5% p.a.

Inflationary pressures will continue

Naira will weaken in the short term

Expect T/Bill rates to decline

External reserves to decline after

Settlement of forward deliverables on Friday $1.65bn

Related News

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

2.      MPC Maintains Status Quo

3.      Monetary Policy Committee Decision Review - Access Bank Plc

4.      Temptation of the MPC to hike again

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

6.      Temptation of the MPC to hike again

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

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

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

10.  CBN Communiqué No. 108 of the MPC Meeting – July 25-26, 2016


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