SAT, MARCH 23 2019-theG&BJournal-The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) will be meeting Monday, March 25 2019 to Tuesday, March 26 2019 for the 266th time in Abuja.
The two-day meeting will be at the CBN corporate headquarters in Abuja, where the apex bank is expected to announce its rates policy decision. The market as always will keep a close watch on the CBN governor’s statement after the two-day deliberation, with majority expecting no changes in rates.
TheG&BJournal takes a look at what will be at play when the committee members meet. Certainly, global economic activity will be on the table amidst concerns of slowdown arising from trade tensions between the US and China as well as the impact of UK’s flip-flopping on Brexit. They will also be looking at the possible impact of the tightening global financing conditions and the rocketing Emerging Market and developing economies debts.
On the domestic front, inflationary pressures, the Forex market and the risks to the nation’s external reserves will weigh heavily on the voting pattern of the committee members.
In January, the Eleven (11) wise men of the MPC voted for the umpteenth time to retain the MPR at 14 percent; retain the asymmetric corridor of +200/-500 basis points around the Monetary Policy Rate (MPR); retain the CRR at 22.5 percent; and retain the Liquidity Ration at 30 percent. Their decision reflects the cautious approach to policy that has been in place since 2018.
A number of identified uncertainties in 2019 helped shape the decision to hold rates steady in January. These include the threats around the general elections, the national minimum wage legislation (passed last week by the Senate), the numerous strikes by various unions seeking to improved working conditions, the continuous insurgencies in parts of the country, impacts of climate change manifesting in increased incidence of flooding, desertification and lower agricultural productivities as well as oil market volatilities.
This time around, what would it be?
Here is what we think.
Thanks to the persistent fall in inflation and the expansionary budget, the job of the committee members is made easier when they decide on the repo rate. The latest inflation figure published by the National Bureau of Statistics (NBS) showed further easing of inflationary pressure by 0.06 percent to 11.31. We expect the CBN to maintain the hold-trend. Besides, inflationary build up remains moderate. Election spending was very subdued from our reckoning. The absurd spending spree was near absent time around.
The CBN governor, Godwin Emefiele has also admired this position and he is not in a hurry to deviate. Bankers (Treasury heads) certainly like it too. None has given a differing view since 2018, not with the praises Emefiele has heaped on them for helping in the effort to keep inflation and exchange rate expectations.
Will the CBN flag concerns for coordination between monetary and fiscal authorities again?
This has always been the main headache for economists in the country. Coordination between monetary and fiscal authorities has either been weak or not ‘’allowed’’. The issue was raised by a committee member in the last meeting and would certainly re-emerge as they sit again next week. The room is there to better improve coordination. As the committee member said in his note; ‘’there is a need for coordination between monetary and fiscal authorities to unlock the economic potentials of the economy and of Nigerians.’’
Recent financial and economic challenges the country faced leading to the recession makes it even more imperative to find an arrangement that ensures that any policy decision by authorities are not contradictory.
How about continued tightening of the economy?
We expect divergent vote from members on this. But it won’t change the outcome of the meeting. Some have warned of the potential risks to the gains made on growth rates but the MPC will remain sanguine on growth and will choose, by majority to stay the course. The performance of the non-oil sector in the 2018 will reinforce their commitment to the dovish approach to rates. In Q4 2018 non-oil sector performance drove growth by 2.7 percent. The World Bank has forecast a 2.2 percent growth for the country in 2019.
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