The monetary policy committee (MPC) holds its latest meeting today and tomorrow in Abuja. In November it voted unanimously for an unchanged stance in all respects, which has been its decision since July 2016. Its view was that prospects for the global economy and the oil price had deteriorated, while the domestic economy had developed a little momentum, if far short of potential. The committee might have tightened and eased over the past two years but feels that the impact of its policy is overplayed, and has an innate preference for a ‘wait-and-see’ position.
- In other circumstances, we would focus our preview of the meeting with a close look at inflation prospects. The committee’s communique in November and members’ related personal statements, however, tell us that it has become relaxed about those prospects and the impact of the mooted increase in the national minimum wage. By way of explanation, one member highlighted the output gap, which he estimated at 1.5%.
- Our take had been that food prices were highly vulnerable to the growing insecurity in growing areas. This has not been borne out by the inflation reports, and we now see the headline rate below 12.0% y/y throughout this year. Both a single-digit y/y core rate for four months and a m/m slowdown in December for the headline measure, the high point seasonally of household demand, suggest that the committee is right to be relaxed on inflation.
- MPC members will be more nervous about the price of UK Brent/Bonny Light, which fell briefly below US$50/b before settling into a range of +/- US$60/b, more than two months ago. They can, however, take comfort from the signals that the normalization of US monetary policy is nearer to its conclusion than previously thought.
- We expect fresh calls for an expansion of the CBN’s “heterodox” financing, along with regrets that the deposit money banks have not risen to the challenge of deepening and diversifying their loan books. The governor, Godwin Emefiele, gave a robust defense of one such lending scheme, the anchor borrowers’ programme, at a recent after-dinner speech (Good Morning Nigeria, 14 December 2018).
- Finally, we have to touch upon the delicate matter of the approaching elections and their impact, if any, on monetary policy. In both India and Turkey there has been a negative impact in the form of changes of central bank governor by the government. Emefiele’s first five-year term ends in June, which happily comes after the post-election period of transition.
- It is rare for a central bank, in developed and developing economies alike, to tighten its policy shortly before elections. We argued at the time that the meeting in November was the moment for a rate hike in Nigeria. That day has passed, and anything other than a call of “no change” this week would come as a surprise.