Personal Statements of MPC Members Reflect Inflation Pressure as Structural


Thursday, May 19, 2016 9:08AM/FBNQuest Research

The meeting of the monetary policy committee (MPC) in mid-March hiked the policy rate by 100bps to 12.00% to combat inflation, and resisted any temptation to ease in response to a rapid slowdown in growth (to 2.1% y/y in Q4). It was the decision of all eight members present.

We can see from their personal statements, which the CBN has this week published, that they were responding to the prospect of a negative rate in real terms and thus a disincentive to investment. One member insists that he had no wish to attract the offshore portfolio community with tightening, and favoured restrictions on such investments.

Members see the surge in headline inflation as the consequence more of structural and supplyside, than of monetary factors. Nonetheless, they supported the rate hike to combat inflation expectations.

Several members see an inflationary push ahead from a monetary source, namely the implementation of the expansionary 2016 budget.

We also learn that CBN staff projections see further increases (in inflation) in the months ahead “before moderating towards the end of the year”. These projections, together with the thinking about investment incentives, may give a clue as to next week’s MPC decision.

One member cites several forecasts including those in-house as indicating GDP growth this year of between 3.5% and 4.0%.

A number of members comment on the failure of the DMBs to respond to the accommodative monetary policies in place from July 2015 until March. An easing of monetary conditions did not lead to loan book expansion. Sluggish private sector credit extension of 8.7% annualized in February coincided, as one wryly noted, with a very liquid money market.

The statements were written before the recent NNPC decision on retail petrol prices. However, we do not see any movement on exchange-rate policy from the eight members in attendance.

For our chosen statistic removed from the context of the statements, we cite the estimate that the reconstruction of the north east will cost more than N1.3trn (US$6.6bn).

We close with a request to the monetary authorities to distribute the statements more promptly, and well ahead of the week preceding the next meeting of the committee. A close reading of this latest set of statements also suggests that they were written at different times (as much as several  weeks apart). Their publication is a clear positive for Nigeria.

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