Divergent views from MPC members suggest possible exchange-rate flexibility

Proshare

Friday, September 04, 2015 8:43 AM / FBN Capital Research


The personal statements from the twelve members of the monetary policy committee (MPC) from their last meeting on 23/24 July reveal more differences than usual. At one end of the spectrum we have a historical critique of “hot money” and a call for a radical overhaul of fx allocation, which currently gives a 21% share to asset management and 16% to oil imports.

 

The contrasting view at the other end dismisses the CBN circular on the 41 import items, warns that the ban could lead to shortages and makes the only mention of the threat by JP Morgan to remove Nigeria from its indices.

We detect a subtle change in thinking on exchange-rate policy. Four members raise the possibility of widening the band, which one terms “guided” flexibility.  One notes that a currency substitution index has risen above the 30% international threshold.

Several members attribute the pick-up in headline inflation to factors over which monetary policy has little influence, including fuel shortages and religious festivities. At the same time we note a warning of heightened demand pressures once arrears in payments of state government salaries are cleared

We have to mention that two members are of the opinion that the target range remains single-digit inflation.


Four of the twelve members voted for a policy rate rise of either 50bps or 100bps in July. The intervening weeks have seen another month of inflation above the range and fresh global turbulence emanating from China. We think that the committee will announce a hike later this month.

We read that, of the 22 business lines for which the CBN reports non-performing loans (NPLs), eleven breached the 5% limit in June. The same applied to seven of the ten largest borrowing lines. Both oil and gas, and manufacturing reported NPLs comfortably below the limit. The aggregate figure was 4.65%.

The only remark that might be deemed remotely political is a reference to “policy inertia”.

We learn that the members have access to staff forecasts for the NSE, and that these project a pick-up in share prices in Q4.

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