November 21, 2023

Unease in financial markets as CBN’s MPC meeting fails to hold

Naira re-denomination will fail in Nigeria — Experts

Yemi Cardoso, CBN Governor

By Babajide Komolafe, Emma Ujah, Peter Egwuatu,  Luminous Jannamike, Yinka Kolawole & Nkiru Nnorom

LAGOS — As Nigerians continue to battle the harsh impact of the rising inflation rate and depreciation of the naira,  anxiety over the direction of the economy heightened yesterday, as the Central Bank of Nigeria, CBN, deferred the bi-monthly Monetary Policy Committee, MPC, meeting for the second consecutive time.  

Created to facilitate attainment of the objective of price stability and to support the economic policy of the Federal Government, the MPC, according to the CBN Act 2007, Section 12, is the highest policy-making organ of the apex bank.

It is mandated 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; Communicate monetary/financial policy decisions effectively to the public and ensure the credibility of the model of transmission mechanism of monetary policy.”

Traditionally, the MPC committee meets every two months, except otherwise decided, in the event of an emergency compromise. The meeting of the committee slated for September 25th and 26th was, however, deferred by the CBN, apparently due to change in the leadership of the bank.  

In a statement announcing the deferment, in September, the CBN’s Director, Corporate Communication Department, CBN,   Dr. Isa AbdulMumin, stated: “The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has deferred its 293rd meeting scheduled for Monday and Tuesday, September 25 and 26, 2023, respectively. A new date will be communicated in due course. We regret any inconvenience this change may cause our stakeholders and the general public.”

With the upward trend in the inflation rate which persisted in October, rising to 27.33 per cent, and continued naira depreciation, financial market analysts, investors and other economic players looked forward to major policy decisions on the economy at the November meeting of the MPC which by tradition should have held yesterday.    

But the meeting did not hold and there was no official statement or explanation from the CBN.

However, sources close to the apex bank told Vanguard that the MPC is mandated to meet a minimum of four times, and since the committee has met four times this year, another meeting is not compulsory.  

Financial sector operators, investors and economists, however, said this development impedes critical investment decisions as it  increases uncertainty and risk in the economy.

Postponements could aggravate economic uncertainty – Muda Yusuf

Speaking to Vanguard, the Chief Executive Officer of the Centre for the Promotion of Public Enterprise (CPPE), Dr Muda Yusuf, said that continuous postponement of the meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) could further aggravate economic uncertainty, if reasons for the postponement are not properly communicated.

Yusuf noted that the apex bank must have some good reasons for the postponement.

His words: “MPC meetings are statutory in nature and also a major source of information on monetary policy direction.    

“The outcomes are critical for investment decisions domestically and externally.    

“CBN must have some good reasons for the postponement. Perhaps it’s because we have a new dispensation in the CBN where the entire top hierarchy is new. The CBN governor and his four deputies are all new.  

“Nonetheless, the postponement ought to be properly communicated to investors within and outside our shores.  Otherwise, uncertainty and risks in the economy would be further aggravated.   

“Outcomes of MPC  meetings bring clarity to the direction of monetary policy and many economic players expectedly look forward to it.”

Better a new date than leave it hanging — Comercio Partners

Similarly,  Nnamdi Nwizu,   Co-Founder,   Comercio Partners, an investment banking firm, said: “It creates a lot of uncertainty around monetary policy for market operators. I can’t remember a time when two MPC meetings were not held in succession. Would have been good if they gave us a new date rather than leave it hanging. Now all we can do is wait to see if the January meeting will hold.”

It’ll keep investors guessing —Akinloye

According to Ayorinde Akinloye, an economist and investment strategist, the decision to put the MPC meeting forward is perplexing and would keep investors guessing on the monetary policy direction of the current CBN administration.

He opined that it would heighten uncertainty in the system.

He said: “The decision to postpone the MPC meeting is a bemusing one given the context of existing economic challenges, particularly as it relates to key monetary policy challenges on interest rates, money supply, and foreign exchange.    

“A comparable case is the Kenyan Central Bank Governor who assumed office on 14 June and held an off-cycle meeting on 26 June due to the critical nature of monetary policy clarity.  

“In terms of its implications, it would continue to keep investors guessing on the policy leanings of the current CBN administration.  

“While a few ideas may be gleaned from the result of recent debt auctions and FX market activities, investors will prefer to listen to the CBN governor’s MPC speech as well as his response to questions that will be raised.  

“Thus, we are likely to see sustained uncertainty in the near term with regards to monetary policy expectations.”

A blessing in disguise —Uwaleke

But Prof. Uche Uwaleke of Nassarawa State University  said: “The postponement of the MPC for the second consecutive time could be a blessing in disguise in the sense that if the MPC had held in September, it was most likely the MPR would have been jerked up thereby further increasing the cost of doing business and reducing access to credit.

“This would have been the outcome of the meeting against the backdrop of the pressure by the IMF for an MPR hike to reduce money supply which would not have had any significant impact on rising inflation.”

Not good for the economy —Kurfi

Reacting to the postponement of MPC,  Mallam Garba Kurfi, Analyst/ CEO, APT Securities & Funds Limited,   said: “It is really not good for the economy to postpone two consecutive MPC meetings while inflation is rising. Monetary policy is one of the key instruments that deal with inflation.  Therefore,  we need to know what other measures   that will be followed to bring the inflation down as well as devaluation of naira.”

It’ll heighten speculation, uncertainty of economy —Oni

Reacting to the postponement of the MPC, Sola Oni, a Chartered Stockbroker/ CEO, Sofunix   Investment and Communications,  said:  “The postponement of the MPC meeting again will obviously heighten speculation and uncertainty as to the direction of the Nigerian   economy. This will continue to affect investment decisions as lack of information on its own is a risk element.

“But we should admit that the new CBN Governor, Mr Yemi Cardoso, inherited a legacy issue of weak economy and spiralling inflation rate which the former administration of the apex bank was unable to address. 

“Besides, the new administration  of President Bola Tinubu has announced its readiness to reform the Nigerian financial market. Much as the MPC should not further fuel speculation on the true and current state of the Nigerian monetary policy, the apex bank is also obliged to take a critical look at the records and integrity of data to provide a more reliable update on the metrics of the Nigerian monetary policy at the moment and the way forward.”

MPC has not been officially constituted —Olatunde

On his part, former President, Chartered Institute of Stockbrokers, CIS, Olatunde Amolegbe, said: “Firstly the MPC has not been officially constituted so this is a reason some have adduced for the postponement. So the question might be what is delaying the reconstitution?”

Market will assume policy directions of MPC—Chiazor

In his reaction, Victor Chiazor, Head of Research and Investment at FSL Securities Limited, said: “Having postponed the September MPC meeting, market participants must have assumed that the new CBN governor required a little more time to settle in before having the monetary policy meeting given the amount of issues facing the Nigerian economy.  

“However, with the postponement of the November meeting, market participants will begin to make assumptions on policy directions of the CBN and that should not be the case. 

“Investors need to know the monetary policy position of the new government and leadership of the Central Bank for effective planning, else we may see a lot of investments sit on the sidelines for lack of clarity.”

It’ll worsen macro-economic woes —Onyekpere

Also expressing concerns about this development, Eze Onyekpere, the Lead Director of the Centre for Social Justice, cautioned that this development could exacerbate Nigeria’s current macroeconomic challenges.

“The implications of the second consecutive postponement are significant,” Onyekpere stated.  

He added that the absence of regular MPC meetings, as stipulated in the CBN Act, implies that “the monetary policy decisions currently being announced by the CBN are essentially the unilateral efforts of Governor Cardoso.”

Onyekpere underlined that this trend is far from ideal, as it undermines the collective wisdom and balanced guidance that the MPC can provide, raising concerns about the transparency and inclusiveness of the decision-making process.

“Moreover, these issues are especially critical given Nigeria’s current economic situation. With an inflation rate exceeding 27 per cent, Nigerians are experiencing a severe erosion of their purchasing power.  

“Yet, the tools to manage this inflation, such as interest rate adjustments, liquidity management, and reserve requirements, are not being effectively deployed due to the lack of MPC meetings,” Onyekpere warned.

He also pointed out the issue of exchange rate stability. 

“Given Nigeria’s reliance on oil exports for foreign exchange earnings, fluctuations in oil prices pose significant challenges to maintaining a stable exchange rate.

“This situation is exacerbated by limited foreign reserves and capital outflows, making it even more critical for the MPC to meet regularly and strategize on maintaining stability in the foreign exchange market,” he stressed.  

Furthermore, the effective transmission of monetary policy decisions to the real economy is a significant challenge due to factors such as weak institutional frameworks, high cost of credit, and non-performing loans.  

“Regular MPC meetings could help address these issues by enabling more strategic and coordinated decision-making,” Onyekpere stated.

Onyekpere also pointed to the challenges posed by Nigeria’s large informal economy and the prevalence of cash-based transactions.

“This complicates efforts to accurately track money supply and implement effective monetary policy measures,” he explained.  

He urged the CBN to not only ensure that MPC meetings are held regularly, but also to consider adjusting the Monetary Policy Rate (MPR).

“By carefully assessing the current economic conditions and the potential impacts of such an adjustment, the CBN could use a change in the MPR to help address the current high inflation and exchange rate instability,” he said.  

However, Onyekpere stipulated that any such decision should ideally be made by the MPC rather than unilaterally by the governor.