June 16, 2017

The one-track mind of policymakers

Ineffective monetary tools for the job

The CBN and the MPC are not inclined to use the tools at their disposal to counter the recession and the spike in m/m headline inflation. They suggest, and we sympathise with their thinking, that the causes of these macro ills are beyond their influence. In layman’s language, they did not create the mess and are not responsible for clearing it up. The MPC has not altered its stance this year and we do not expect any change until next year.

Gentle easing in 2018

We see lower inflation in 2018 on the easing of the supply-side constraints and modest rate cuts totaling 100bps from the MPC in response.

A bold experiment but unlikely to succeed

Policymakers are focused on fx, and little else. They have identified inflows from the offshore portfolio community as the fastest route to tackling fx shortages and come up with NAFEX alongside the several other windows.
Promising early signs have taken some of the pressure off the CBN. However, we doubt that this new window will generate the autonomous inflows to allow the CBN to take a step back. It cannot sustain the pace of its fx interventions indefinitely. An adjustment (devaluation) beckons.

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