Market to Weigh New MPC Members’ Monetary Policy Stance

Market to Weigh New MPC Members’ Monetary Policy Stance
Godwin Emefiele, CBN Governor

. Analysts favour monetary policy easing to grow economy

As the newly confirmed members of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) and Deputy Governors go in for their inaugural MPC meeting tomorrow, financial market operators would be watching to assess their monetary policy stance.
The two-day MPC meeting, which is the first this year, is expected to end on Wednesday.
There is also optimism that as the financial market re-opens tomorrow after the public holiday that was declared to celebrate Easter, financial analysts are of the opinion that since the country’s economic indicators have been positive this year, it has strengthened the argument for monetary policy easing.
Mrs. Aisha Ahmad and Mr. Edward Lametek Adamu last week formally assumed duty as Deputy Governors of the CBN, following the confirmation of their appointments by the Senate the preceding week.
In addition, the trio of Professor Adeola Festus Adenikinju, Dr. Robert Asogwa and Dr. Aliyu Rafindadi Sanusi were also at the Head Office of the CBN to formally commence their tenure as members of the MPC of the Bank.
At the last MPC held in November 2017, the MPC had retained the benchmark Monetary Policy Rate (MPR) at 14 per cent. Then, the committee also retained the cash reserve ratio (CRR) at 22.5 per cent, the Liquidity Ratio (LR) at 30 per cent and asymmetric corridor around the MPR at +200 and -500 basis points.
But since this year, the country’s economic indicators have been positive. Thus, it has strengthened the argument for monetary policy easing.
For instance, the fourth quarter 2017 Gross Domestic Product (GDP) figures released last month showed that the Nigerian economy grew in real terms by 1.92 per cent in Q4 of 2017 year-on-year, maintaining its positive growth trajectory since the emergence of the economy from recession in Q2 of 2017.
Also, the country’s external reserves currently stand at $46.3 billion, according to figures on the central bank’s website, while the naira has remained stable and inflation continues to decelerate.
To the chief executive, Financial Derivatives Company Limited, Mr. Bismarck Rewane, there is the need for the MPC to reduce the MPR.
“I believe that they should reduce the MPR by 25 basis points. But if they don’t have the courage to do that, like it happened in Ghana, South Africa and some other countries, they should probably adjust the asymmetric corridor to make it +5 and -5, rather than +2 and -5. They should reduce the cash reserve requirements,” he added.
But a research analyst at Ecobank Nigeria, Mr. Wale Okunriboye, argued that to sustain inflow from portfolio investors, the MPC might retain all its monetary policy tools at its meeting tomorrow.
He explained that: “Since last year when inflation started to come down, the central bank didn’t see the need to cut interest rate because it feels it will be too pre-emptive and may be a disincentive for foreign investors.
“Consistent with that view and given where inflation is, which is still higher than the policy rate, the MPC members may decide to wait till May, to see if inflation will drop to about 10 per cent to be comfortable to cut.
“For the new members as well, I don’t know if they would have settled down for them to make the right decision.”
To analysts at FSDH Merchant Bank, the short-term outlook of the Nigerian economy favours monetary policy easing to stimulate credit creation and economic growth.
They pointed out that the easing may be in the form of an adjustment to the MPR or an adjustment to the CRR.
“Although the GDP growth rate in Nigeria improved further in Q4 2017, the recovery is still very fragile. Thus, additional monetary policies are required to stimulate a broad-based growth.
“The increase in the crude oil price and favourable crude oil production in Nigeria have increased capital inflows and led to a favourable trade balance.
“FSDH Research believes the inflation rate may drop to single digit mid-year, while the exchange rate should remain stable in the short-term. “Therefore, there is a need for monetary policy easing to boost credit creation and stimulate economic growth.
“Looking at the short-term outlook of the Nigerian economy, FSDH Research believes the MPC should begin monetary policy easing to signal the end of its monetary policy tightening cycle,” they added
It would be recalled that the Senate recently confirmed the nominations of Mrs. Aisha Ahmad and Mr. Edward Adamu as deputy governors of the Central Bank of Nigeria, paving the way for the Monetary Policy Committee (MPC) of the Bank to hold its first meeting this year slated for tomorrow.
Before now, the Senate had on July 2017 resolved to suspend all confirmation processes for presidential nominees whose offices are not specifically listed in the 1999 Constitution.
The resolution was made after Vice-President Yemi Osinbajo, by his remark, deepened the rift between the Senate and the Executive over the rejection, twice, of the nomination of Mr. Ibrahim Magu as Chairman of the Economic and Financial Crimes Commission (EFCC) by the upper legislative chamber.
Osinbajo had said since the EFCC was not specified in the constitution, there was no need to have sent the nomination to the Senate in the first instance.
The Senate thereafter resolved to suspend consideration of all such nominees, pending the legal determination of its power of confirmation.
However, the Senate reconsidered and rescinded its stance last week on the CBN nominees and gave its Committee on Banking and Financial Institutions one week to screen them.
During the confirmation, it however, rejected the nomination of Dr. Asheikh A. Maidugu as a member of the MCP.
Also confirmed were Prof. Adeola Festus Adenikinju, Dr. Aliyu Rafindadi Sanusi and Dr. Robert Chikwendu Asogwa as members of the MPC.
The Senate also yesterday transmitted its resolutions on the nominations to President Muhammadu Buhari for further action required for the nominees to be a part of the next meeting of the MPC.
The resolutions followed the adoption of the recommendations of its Committee on Banking, Insurance and Other Financial Institutions.
Chairman of the committee, Senator Rafiu Ibrahim, said while all the nominees performed well at the screening and were cleared by relevant security agencies, Maidugu did not respond satisfactorily to some questions.
“The nominee (Maidugu) was interviewed by the committee and he responded to the questions asked by the members, but the committee was dissatisfied with his response to the independence required for each member of the MPC, and we are concerned that a regular civil servant who is ladened with bureaucracy and red-tapism, may not be independent in his judgment on each crucial decision of the MPC that affects directly the whole economy,” Ibrahim said.
He stated that the other three nominees for the MPC have the vast knowledge that will facilitate the attainment of the objectives of price stability and the formulation of monetary and credit policies of the CBN.
“The three nominees are knowledgeable in the operations of the CBN Act and the Banks and Other Financial Institutions Act,” Ibrahim added.
The Senate Majority Leader, Senator Ahmed Lawan, speaking after the nominations had been adopted, called on the president to quickly send in a replacement for the rejected nominee.
He also urged the Senate to make concessions for the screening of members of the governing board of the CBN, as the MPC requires at least two more persons to form the required quorum.
Presiding, Senate President Bukola Saraki said the request to consider screening the governing board nominees would be considered at plenary this week.

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