NIGERIA: Major Monetary Policy Shift Ruled Out at Tomorrow’s MPC Meeting

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Nigerian monetary policy will tomorrow enter a crucial stage in the tenure of the Acting Governor of the Central Bank of Nigeria, Mrs. Sarah Alade, as members of the apex bank’s Monetary Policy Committee converge on Abuja for its 238th Meeting.
Tomorrow’s meeting is unique being the last to be presided over by Alade and it promises to lay the foundation for the tenure of the in-coming governor of the bank, Mr. Godwin Emefiele.
Analysts therefore believe the meeting will be of great interest to stakeholders in the nation’s economy including the Federal Government, the banking community, real sector and the international business community.
However, a spectrum of economic affairs commentators who, at the weekend spoke with THISDAY ahead of the all-important MPC meeting ruled out a major shift in the position of committee members on the nation’s monetary policy at the meeting.
Their optimism was hinged on the realisation that Alade is leading a caretaker committee whose position may be tinkered with by the in-coming governor of the bank, given the fact that Emefiele will be stepping into the saddle next month with his own agenda.
According to the Managing Director, Wema Bank Plc, Mr. Segun Oloketuyi, the fact that there has not been any fundamental change in the nation’s macroeconomic indices in the past few months has underscored the need to leave some of the rates unchanged at the meeting, although he would support any policy to tame inflation.
He said: “I expect effort aimed at taming inflation to continue because since the last MPC meeting chaired by the acting governor, there hasn’t been any dramatic development to necessitate a shift. My expectation is that the statusquo will remain. In terms of money flow in the system, I can say nothing much has changed.
His position was not different from that of the Managing Director, Financial Derivatives Company, Mr. Bismarck Rewane, who described the committee as a caretaker one considering the fact that a new governor is taking charge next month.
“It is going to be a caretaker meeting, so that the landlord (Emefiele) can come and give the direction he wants to go. I do not expect significant changes because the macroeconomic fundamentals have not deteriorated sharply to necessitate that kind of action. However, I think that all the money supply growth has not got to the point of destabilising the system,” he said.
According to the FDC boss, “The question is what are the fundamental economic issues that have to be dealt with now? I think that is more than anything else. I suspect what the committee would be looking at are the external reserves, inflation trend, the money supply growth, and a number of other issues. Sanusi has macroeconomic instinct.”
Projecting into the tenure of the incumbent governor, Rewane said: “If I’m a governor and I saw money supply in the last four months growing at the rate which it is growing, even though annualised, we are still negative, I will see whether I can tamper with my public sector cash reserve ratio because as a result of excess demand for foreign exchange, the reserves have come down to $37.6 billion as at May 9 and if you check the figure today, I suspect it is going to be lower. I know the governor-designate will take a hard look at money supply growth and think of what to do about it.”
He believed the acting governor could not influence the decision of the MPC at the meeting given the independence of members of the committee.
He explained: “First and foremost, as the chairman of the committee, there is no significant influence on the outcome of the meeting because the committee is an independent one and its decision is determined by simple majority. I don’t think we should ascribe unnecessary power to the chairmanship of the committee although the chairman selects some members of the committee and these people have been selected by the outgoing governor of the bank, Mallam Sanusi Lamido Sanusi, and the other members were from the Presidency.”
However, Managing Director, Economic Associates, Dr. Ayo Teriba, would prefer to wait until the end of the meeting before determining the direction of the committee.
In a response to THISDAY enquiries, he said: “There is no factual basis to gauge the likely outcome of the MPC meeting because the financial data they will discuss will only be made public after the meeting. If they had shared the data ahead of the meeting, one can more objectively assess what the issues are and anticipate the outcome of the meeting.”
As Emefiele takes over the leadership at the CBN in June, analysts are interested in the future direction of monetary policy and banking supervision in Nigeria.
In addition to the fact that the in-coming governor appears different from Sanusi in personality, he has expressed a possible preference for monetary policy that favours inclusive economic growth. This could imply a shift from the single-minded price stability pursuit of the previous regime.
In the opinion of the BGL Plc, the present non-accommodative stance might remain even when the new CBN governor takes over in June. The investment advisory firm, however, concluded that while no change in current monetary poise is expected at the immediate resumption of the new governor, a robust policy framework is imminent in the post general election period in 2015.
The firm, in a special report titled: The incoming CBN Regime: Expectations on Policy Direction for Monetary Policy and Banking Supervision, said: “Although the monetary policy rate may have been raised to a level where further increase may be inimical to the rate environment, on resumption, Mr. Emefiele may not immediately change the contractionary pose because of the present pressure on the naira exchange rate, which he is committed to protecting.
“We do not see his regime winding down on the current level of CRR across deposit classes until after the election.
Emefiele’s development agenda would arguably be easy to push after the general elections in 2015 at which time the key factors putting pressures on prices including the tapering of quantitative easing in the US, the challenging oil revenue environment, the increasingly politically charged and insecurity heightened risk profile of the economy, would be clearer. Fortunately, the current level of inflation and its outlook is significantly positive.”
The report noted that at the last MPC meeting, the first in the post-Sanusi era, the voting pattern suggested that each member was more critical and participatory which may indicate that the strong personality of the former governor prevented such participation earlier. For the first time in five years, five members voted to keep the Monetary Policy Rate at 12 per cent while four members voted for an increase.
“The keenly contested voting pattern of 56 per cent: 44 per cent amongst the members was a complete departure from the voting patterns of previous meetings which appeared to be affected by social proof or bandwagon effects.
“Considering the mien of Mr. Emefiele, we are likely to see more participatory MPC meetings and deeper insights on decisions to the benefits of the market,” the report said.
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