MPC members moving towards tightening

The CBN last week released the personal statements arising from the last meeting of the monetary policy committee (MPC) in late July. Seven members voted for no change, two for a hike in the policy rate of 50bps and the tenth for an increase of 25bps. The committee has moved towards tightening since May, and we now expect a rate hike by end-year in response largely to inflationary pressures arising from fiscal developments. We suspect that it may only come in November on wait-and-see-grounds.


  • Although staff forecasts point to a continuing deceleration in y/y headline inflation through to November, members sense mounting pressures that require a change in stance. There are supply-side constraints that are not new, including: insurgency in the northeast, clashes between farmers and herdsmen, high energy costs and the creaking transport infrastructure.

  • Members dwelt at length on fiscal pressures, namely the expansionary nature of the N9.12trn 2018 budget, the tendency of political parties to exceed set spending guidelines and the discussions over a hike in the minimum wage.

  • In our view the MPC’s fears are overstated because projected FGN spending in 2018 is no more than 8% of forecast GDP, and, based on precedent and the late passage of the budget, is most unlikely to be released in full.

  • One member queried the accuracy of traditional measures of monetary growth and noted that a new seasonally adjusted definition of M3, which allows for liquidity outside the banking system, pointed to higher expansion than previously assumed.

  • The statements highlighted the small decline in lending by deposit money banks (DMBs) to the private sector and again called for an unconventional approach to reverse the trend. There were specific proposals to develop a moveable assets register and to cut the rate in the CBN’s anchor borrowers’ programme from 9% to 5%. These sat alongside more general demands for a dynamic CRR and the “smart use” of monetary instruments.

  • Members naturally welcomed the rise in the crude oil price and the US stance on Iranian sanctions. However, several had concerns in the long term, based upon the growth of the shale oil industry in the US. Additionally, one highlighted the new Chinese industrial policy to dispense with machinery which depends on fossil fuels between 2022 and 2024. We may consider the timetable ambitious but the trend in the industry globally is undoubted.

  • Two statistics among the statements surprised on the upside: a reported slight drop in the quarterly unemployment rate and a 22% y/y increase in fx generated from non-oil exports in January-April 2018.

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