MPC members find their voice

We hear the argument that analysts should focus less on the findings of the monetary policy committee (MPC) than on the direction of yields on NTBs, as guided by the CBN’s auctions and open market operations. The fact that the committee has not changed its stance since July 2016 reinforces this argument: there have been occasions when it might plausibly have eased and tightened over the period. Nobody can reasonably query its decision in January, however, one month ahead of the elections.

  • We still value the personal statements of MPC members for the insights into the thinking of policymakers. It is also worth stressing that seven of the full-strength committee of 12 members are very senior CBN officials.
  • On inflation, the latest statements share a benign outlook, tempered by near-term concerns around the minimum wage proposal and election-related spending. They note a m/m decline for the three principal measures in December (although the January report from the National Bureau of Statistics brought a gentle reversal of the trend). They play down the spike in monetary aggregates in December, which raised the full-year figures for M2 and M3 above the provisional benchmarks for 2018.
  • On growth, one member makes the valid point that monetary policy alone cannot restore annual GDP growth to the levels of 5.0%+ seen in the early 2010s. Fiscal policy and structural reforms have a core role. Forecasts for growth in 2019 range from 2.0% from the IMF, 2.2% from the World Bank and 2.3% from the CBN itself to 3.0% in the FGN’s latest budget proposals.
  • We read that annual population growth stands at 2.8% although the source is not given.
  • Several members highlight the very low growth in private-sector credit extension of about 2.0% in 2018 vs the annual target of 12.4%. They welcome the proposed national microfinance bank and the strengthening of existing institutions while calling for more lending by state-owned development banks.  Surprisingly, there is no mention of the potential in this area of mobile money.
  • We learn that the CBN is operating a “managed float foreign exchange management regime”. Another member concludes that a full float would be “devastating”, warning of a volatile exchange rate, inflation, capital flight and currency crisis. This highlights CBN thinking on bona fide liberalization.
  • Among the trenchant policy suggestions on offer, we pick out one call for a reduction in subsidies and another for additions to the CBN’s list of 41 items not valid for foreign exchange in its circular of June 2015.

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