Emefiele seen pausing as MPC meets for last time in 2016

Nigeria’s Central Bank Monetary Policy Committee (MPC) is likely to hold interest rates when it meets for the last time in 2016, on November 21 and 22.

Although headline inflation remains at elevated levels, (printing at 18.3 percent in October), the MPC may hold fire in wait for further economic indicators before taking action on whether to raise or slash rates.

This could be in order to sufficiently weigh the impact of its last monetary policy decision, given that monetary policies work in a lag.

The committee agreed to keep the Monetary Policy Rate (MPR) at 14 percent, the Cash Reserve Ratio (CRR) at 22.50 percent and the Liquidity Ratio at 30 percent at its last meeting which held in September.

A rate hold is unlikely to sit well with Nigeria’s Finance Minister, Kemi Adeosun who had clamoured for a reduction in September, to reduce domestic borrowing costs for government which planned to take on N900 billion in domestic debts in 2016, to tackle an economic recession.

Godwin Emefiele, the CBN governor and chair of the MPC, said September’s decision was in a bid to tame inflation, adding that “monetary policy alone cannot boost growth.”

As the MPC commences its meeting today, some analysts expect another hold.

Pabina Yinkere, head of research at Vetiva Capital said “I don’t think inflation figure is unexpected and I would expect MPC to hold.”

Month-on-month inflation saw its first rise in four months in October, as it rose to 0.86 from 0.81 in the earlier period, driven partly by higher costs of food and education.

Tajudeen Ibrahim, head of equity research at Chapel Hill Denham thinks the slight uptick in monthly inflation is not a major worry for the MPC members.

This is considering that, according to Ibrahim, it’s the first time in the past four months that monthly inflation has risen. ‎

“Monthly inflation could subside on the back of crop harvests in the coming months,” Ibrahim said in an emailed response to questions. Adding that,

“Importantly, the other possible drivers of inflation such as banking system liquidity and FX have been tamed in recent weeks with the banking system liquidity at negative N50bn as at two weeks ago.”

Africa’s biggest economy is reeling from low economic activity brought on by the crash in oil prices and militant attacks on oil production.

However, rising inflation is combining with an economic lull to make for a perfect storm of stagflation boxes the MPC into a tight corner as it seeks to revive growth but is keen on subduing inflation.

“Nigeria’s central bank will be hard pressed not to raise interest rates next week,” says John Ashbourne, Africa economist at Capital Economics.

The CBN hiked rates for the first time this year in July, pushing it by 200 basis points to 14 percent from 12 percent the previous month, as it sought to tackle rising inflation.

 

LOLADE AKINMURELE