Friday, January 22, 2016 09:08 AM / FBNQuest Research
The next meeting of the monetary policy committee (MPC) takes place in Abuja on Monday and Tuesday. Judging by the intensity of the media commentary, we could be forgiven for thinking that its only decision is whether to adjust its exchange-rate policy.
The depletion of official reserves, the slide in the oil price and the intermittent global market turmoil emanating from China and elsewhere could make a good case for devaluation. We are not so sure. The preference of the CBN and the MPC is to deploy administrative measures.
We would not be surprised by some new measures. In any event, the committee may well want to assess the impact of its recent steps before announcing a devaluation (or even introducing some new ones).
The benefits of a devaluation with or without a float can be overstated: a lift for (Nigeria’s marginal) non-oil exports and the FGN’s naira revenues from foreign trade taxes, perhaps some re-entry of unrecorded capital and the attainment of fair(er) value.
The increase in fx availability would not be huge. The authorities could look at exchange rates post-devaluation in Russia, Azerbaijan and elsewhere, and maintain their policy as its stands.
The MPC has other business to transact, of course. We think that another policy rate cut next week would be unlikely, given stubbornly high inflation and global uncertainties. We also look for some fleshing out of the committee’s thinking on ways to get banks to expand their loan books, whether by moral suasion or through conditionality attached to the CRR.