Analysts are of the view that there will be no earthmoving decisions at the first meeting of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) beginning today.
The delayed effect on key economic variables of far reaching decisions taken at the MPC meeting in November last year, the December inflation rate nudging to 8 percent from 7.9 percent in November, as well as the forthcoming general elections in February, were among the reasons cited.
In November 2014, the MPC hiked the Monetary Policy Rate (MPR) to 13 percent from 12 percent; shifted the dollar exchange rate midpoint to N168 from N155, with a wider band of +/-5 percent; and increased the private sector cash reserve ratio (CRR) to 20 percent from 15 percent – all in one meeting.
The CBN also followed up with capital control-like measures and interventions in the foreign exchange market, in a bid to stem the depletion of the external reserves and support the naira.
The expected inflationary impact of the CBN measures passing through imported food prices on festive season demand was yet benign, as the headline inflation rate printed 8.0 percent in December 2014, compared to 7.9 percent in November, according to the latest CPI Report released by the National Bureau of Statistics (NBS).
“We had expected the cost effects of the naira devaluation to set in, but there could still be a two to three month lag effect, hence the impact yet unseen on inflation.” says Ebo Ayodeji, head of research at Afrinvest West Africa, a leading boutique investment bank in Nigeria.
According to the NBS, the December headline figure implies that inflation rates have remained within a single digit range for the past 24 months since January 2013.
This achieves the CBN’s inflation target range of 6 to 9 percent but there are weightier matters for the MPC to consider at this two-day sitting.
“Inflation is not the major factor that gives the CBN concern currently; their top concern is how to preserve the naira and prevent further depletion of our reserves.” Ayodeji further commented in a telephone interview with BusinessDay.
Yvonne Mhango an economist at Renaissance Capital (RenCap) thinks “another devaluation is likely in the short term” as CBN FX auction sales surged to $450 million on January 7, a volume last seen pre-devaluation in October 2014.
With interbank exchange rates currently at N186 to the dollar, and street rates at N192, expectations are that the CBN could move for a second devaluation closer to N200; albeit not hurriedly.
“Given the extent of monetary and administrative measures implemented in the past two months, the committee is unlikely to be in a hurry to tighten at this meeting,” says Adedayo Idowu of Vetiva Capital in an emailed commentary to BusinessDay.
More considerations for the MPC are the persisting global economic challenges amid lower oil prices, which the World Bank’s recently released 2015 Global Economic Prospects report shows would contribute divergent prospects for oil-exporting and -importing countries.
The oil price declines from $117 to about $47 from June 2014 to date, have left Nigeria with an 8 percent drop in reserves to $34.5 billion and a N4.3 trillion spending plan threatened by every oil dollar drop.
Notwithstanding these considerations mounting pressure for more decisive MPC actions, we believe the Committee will wait it out at its meeting starting today, ahead of the general elections in February.
Akin-Olusoji Akinyele
