Little room for manoeuvre for the MPC

Proshare

Monday, March 21, 2016 9:15AM /FBNQuest Research

The next meeting of the monetary policy committee (MPC) takes place in Abuja today and tomorrow. It has to contend with the slowdown in growth (to 2.1% y/y in Q4 2015) and a pick-up in inflation well above the “tolerance” range (to 11.4% y/y in February).

The policy rate of 11.00% stands below prevailing inflation, which undermines the case for easing to boost flagging growth. A hike would be the textbook response to the inflation data but would be unlikely in view of the GDP numbers and signs of a pro-growth stance in the committee.  

We expect some overdue clarification of the current tolerance range for inflation of between 6% y/y and 9.0%.

The committee would value some support from the fiscal authorities to lighten its policymaking load and encourage economic recovery.

It will be impatient for the passage of the 2016 budget, an increase in non-oil revenue collection and the release of funds for capital spending. We share these concerns but caution that the desired impact on the broader economy will not be felt until H2 2016.



Any changes to exchange-rate policy would be surprising in our view, and we suspect that the offshore portfolio community is finally resigned to the fact. The committee could point out that official reserves have increased by US$40m this month (through to 17 March), and have been stable for six weeks. This stability may well have been achieved at the expense of additional unmet fx demand but is nonetheless welcome to policymakers.


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