Nigeria MPC Meeting: Economists Say Slow Growth, High Inflation, Naira Value Will Top Agenda

When members of the Central Bank of Nigeria’s Monetary Policy Committee (MPC) meet for their 244th meeting in Abuja tomorrow, economic experts believe the key policy considerations will be the current stagnation in the nation’s growth rate, high inflation, naira volatility, precarious state of the nation’s external reserves and anxiety over the policy thrust of the incoming administration.

Speaking in separate interviews, the economic experts also explained that although the committee may not want to pre-empt the incoming administration by voting for a fundamental shift, they however believe that the MPC will not hesitate to make their concerns known to the public.

In his opinion, Managing Director, Wema Bank Plc, Mr. Segun Oloketuyi, believed majority of the committee members will likely vote for the retention of the current rates. He maintained that “The disposition of the regulator is still in favour of a tightening regime in protection of the value of the naira. In my view however, the Cash Reserve Ratio (CRR) should be reviewed downward.” According to the banking chief, lending has slowed down significantly in the economy and that is having a major negative impact on development. “The average CRR will be in the region of 30-40 per cent in addition to a liquidity ratio of 30 per cent.”

According to him, failure to soften the stance on the rate may be tantamount to attacking a challenge and inadvertently creating a bigger one, explaining that, “A series of coordinated actions from both the monetary and fiscal authorities are required to fix the economy. Certainly, fixing one variable will not solve the problem,” he concluded.

However, Managing Director of Financial Derivatives, a financial and investment advisory firm, Mr. Bismarck Rewane, believes that the considerations the nation will be facing primarily include the stagnant growth and the need to do something about the interest rate to stimulate growth, explaining however that bringing down the interest rate will affect the value of the naira.

He said, “The question is, are you going to bring down interest rate to stimulate growth or are you going to keep the rate high to protect the naira? If the inflation has gone up, then interest rate cannot afford to be coming down. There is what we call monetary policy dilemma.”

The economist believes Nigeria is facing what is called ‘stagflation’, which means growth is stagnant while inflation is increasing. The only way out is to have catalyst for economic activities.

On whether consideration for a change of government will affect MPC decision, Rewane said economic realities do not have timetable. Whether it is night or day, whether there is a new administration or not, it doesn’t matter. Prices do go up whether there is a new administration or not. Your domestic political timetable is your own business. The fact is prices of good will go in a direction; the value of the naira will go in a direction. It is the Nigerian government that will take economic variables into consideration, economic variables cannot take Nigeria’s political timetable into consideration,” he said.

On whether to expect a fundamental shift at the Monday’s meeting, Rewane stated, “I don’t think it will happen, but the problem will be highlighted. Whether actions will be taken is a different story but the MPC will make its concerns known to the public.”
In an interview with THISDAY, Chief Executive officer of Nextnomics Advisory, Dr. Temitope Oshikoya, cautioned against too much expectation. He believed the meeting may not come up with any major policy thrust as it is expedient to understand the economic policy thrust of the incoming administration.

“As I have argued in “MPC at crossroads” in November 2014, there is no need for elevated policy action on the interest rate in the short term.  Supply shocks that lower aggregate supply move both inflation and output in opposite directions and it is quite difficult for monetary policy to completely neutralise the conflicting deviations from output gaps and inflation gap. With negative supply and oil price shocks, trying to aggressively maintain its inflation target could restrain output growth,” he said.

He expressed the belief that, “There is need to have some realistic picture of the new economic team and policy direction of President-elect Buhari. The MPC needs to fully understand what I will refer to as the Quadrilemma of Buharinomics,” engender by the need to pursue equity, efficiency, economy and effectiveness. While Buhari’s campaign manifesto is geared towards equitable prosperity for all, his administration is inheriting a stalled economy plagued by several inefficiencies and lack of effective governance,” he argued.

He noted that output growth rate has declined more sharply, with GDP growth rate, according to NBS, slowing to 3.96 per cent in first quarter of 2015, compared to 5.94 per cent in Q1 and 6.2 per cent in Q4 of 2014. Although the inflation rate has inched up to 8.7 per cent as expected due to the depreciation of the naira and following a J-Curve phenomenon with an initial dip in December, 2014 and gradual rise since 2015, the interest rate is still high in real term.

However, Chief Executive Officer, Guinness Nigeria, John O’Keeffe, in a response to THISDAY enquiries, said the manufacturing sector will prefer that the MPC meeting reappraise performance of the economy, particularly from the beginning of the year and come up with friendly policies that will engender growth in the manufacturing sector.

O’Keeffe said in a statement what Guinness Nigeria expects. “First, we would want the MPC to examine developments in the economy since the start of 2015 in order to evaluate whether the effect of the decision of the MPC in recent times has been positive or negative. Other than the relative stability in the exchange rate, the effect has been mostly negative on the sector. Most of the first quarter financial results for the major manufacturing companies have now been released and almost without exception, all the companies have witnessed a decline in the key performance metrics.

“We would therefore want to see a reduction in the nation’s MPR, in order to grow the real sector and prevent the economy from any further decline. We also expect that the CBN should offer some palliatives to the sector in the form of special credit or intervention funds to the sector.

“If the manufacturing sector can have access to low cost financing, it will go a long way to address the type of decline we have witnessed in the sector since the beginning of this year,” the statement reads.

In his contribution, Managing Director, Cowrie Asset Management Limited, Mr. Johnson Chukwu, said, “Given the stage of transition, I think the most appropriate thing one will expect is to keep rate at current levels. It is not likely they will further engage in increasing cash reserve ratios. I think they will maintain the status quo.”

He is of the opinion that the committee will hold on to the existing monetary policy rate. “Basically, I believe they will wait for the policy direction of the in-coming government and at the next meeting they will now consider what will be appropriate policy response in terms of monetary policy rate,” Chukwu said.

At its last MPC meeting in March, the monetary policy committee retained the Monetary Policy Rate at 13 per cent. The committee also retained the CRR on private and public sector deposits at 20 per cent and 75 per cent respectively. It also retained the liquidity ratio at 30 per cent.

Source: Thisday Live Nigeria.