By Emeka Anaeto, Economy Editor
The last Monetary Policy Committee (MPC) meeting in the life of the present government holding today will largely shy away from key economic issues threatening the nation’s economy, due to transition uncertainties.
In order to facilitate the attainment of the objective of price stability and to support the economic policy of the Federal Government, a committee of the Central Bank of Nigeria (CBN) referred to as MPC is in place made up of the CBN Governor as the Chairman with the four Deputy Governors of the Bank, two members of the Board of Directors of the Bank as well as three members appointed by the President and two members appointed by the Governor.
The MPC is the highest policy making committee of the CBN with the the mandate to review economic and financial conditions in the economy, determine appropriate stance of policy in the short to medium term, review regularly, the CBN monetary policy framework and adopt changes when necessary, and also communicate monetary/financial policy decisions effectively to the public and ensure the credibility of the model of transmission mechanism of monetary policy.
The MPC meets quarterly, and today’s meeting is the second this year. Sources close to the Committee said nothing fundamental would happen despite the major fundamental challenges the economy has been facing in the past six months which have forced some reversals in the economic gains of recent years. For instance the inflation rate and exchange rates have been on headwinds while macroeconomic stability is also faced with dwindling revenue inflow and external reserves.
Though no major policy decision would likely emanate from today’s meeting sources close to the Committee indicate that considerations would be given to wide-ranging issues which the members consider as key decision points for the in-coming government at national level. Some of the issues being put forward includes inflationary pressure containment strategy, exchange rate management, money supply from fiscal perspectives amongst others.
Commenting on the outlook of today’s MPC the research team at Afrinvest, one of Nigeria’s leading investment houses, outlined three major possible policy options before the Committee, first being to retain Marginal Rediscount Rate (MPR) at 13 per cent, public sector Credit Reserve Ration (CRR) at 75 per cent, private sector CRR at 20 per cent, liquidity ratio at 30 per cent and then announce a floating of the currency to eliminate pressure on external reserves.
The next alternative course of action before the MPC today, according to Afrinvest, is to retain all the ratios above and then increase CBN’s intervention rate at the interbank foreign exchange market to reduce the pressure on the reserves. However, Afrinvest says MPC also has the option of not only leaving all the ratios as they were, but it could also decide to stay with status quo on all economic and monetary policies to allow the in-coming federal government to settle down before grappling with any major policy issues.
On the probabilistic basis, Afrinvest assigned 5 per cent likelihood for first option, 45 per cent for the second option and 50 per cent for the last option. This possible position, according to Afrinvest, would just be for political expediency rather than sound policy stance in the face of serious and urgent economic challenges. Some of the challenges include the heightening arbitraging in the currency market resulting from a half-baked foreign exchange policy which has left the parallel market margins at about 12 per cent as at last week when CBN rate was N197/ USD1.00 while parallel market was N122.5/ USD1.00.
A few analysts believed that the post-election renewed confidence in the economy may favour inflow of foreign capital while starving off capital flight, but the ability of CBN to to maintain the induced forex market stability remains in doubt should the apex bank maintain the current level of intervention in the light of the external reserve position. The other challenge is the heightening inflationary pressure and the declining gross domestic products (GDP) both of which have threatened the gains of the recent years especially as it concerned the enviable position of Nigeria as Africa’s largest and fastest growing economy.
Economy watchers have expressed concern over the accerating of inflation rate this year, though expected as the fall out of the exchange rate crises but without any mitigation policy in place or being conceived. The general price level has assumed a steady upward trend since the initial November 2014 devaluation of Naira. With respect to the fiscal policy the MPC would likely be more concerned with speculations on the likely fiscal stance of the in-coming government rather than the policy thrust of the current national budget which had hitherto guided their policy positions.