CBN MPC’s last call for 2021, but all arsenal fully exhausted

• Committee to keep pro-growth objectives intact
• Markets‭, ‬stakeholders with muted reaction

The last  Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) meeting in September saw members vote unanimously to leave the policy rate of 11.5 percent and other parameters unchanged with the hope that a hold posture would allow the recovery of output growth and the downward trend in inflation to continue smoothly.

For the sixth and final time in 2021, the committee is gathering again today (Monday) and tomorrow (Tuesday) to decide on major economic parameters in the face of recent domestic macroeconomic developments.

Unsurprisingly, though, a myriad of economic analysts have in their assertions noted that the MPC at this final bi-monthly gathering for 2021 will, in the face of output expansion and moderating inflation, stick to the use of unorthodox tools within its arsenal, as all corners of the domestic economy lighting green, will give it no room for a rates maneuvering when members emerge from the gathering.

One analyst who spoke with Business A.M. on the matter, said there is likely to be an unsurprising outcome after Tuesday just like we have seen over time since the second half of last year, where the apex bank kept all parameters flat.

“Well, for me I still see them maintaining the rate even with a decline in the inflation rate. This is hinged on the need to further stimulate economic growth while ensuring exchange rate stability. In that light, the reactions of stakeholders or the market are likely to maintain its current status quo,” he said.

Abiodun Keripe, chief analyst and managing director, Afrinvest Research and Consulting, in response to Business A.M.’s questions, said the slow but positive expansion in economic output will provide comfort to the CBN to maintain status-quo as they have done in the previous meetings.

“I believe the slower 4.0 percent Q3:2021 GDP performance, further moderation in the year on year headline inflation rate in October to 16 percent, and favourable improvement in the external environment, such as the recent increase in Nigeria’s oil production quota to 1.67mbpd from 1.65mbpd, and the stabilisation of crude oil prices above $80 per barrel, would provide comfort for the CBN to maintain the status quo at the next Monetary Policy Committee (MPC) meeting. Should this happen, the market is expected to remain resilient amidst policy stability,” he said.

Also, economic analysts at United Capital Research said: “With regards to monetary policy, we believe the continued expansion in economic output will see the CBN’s MPC hold MPR at its upcoming November meeting. The continued GDP expansion coupled with moderating inflation pressures will justify the hold stance and could see the CBN retain the use of unorthodox tools within its arsenals such as OMOs and CRR debits to manage system liquidity.”

Analysts at FBNQuest Research Capital opined thus, in a note: “At the previous meeting in September, the committee left all parameters unaltered after members said a hold posture would allow the recovery of output growth and the downward trend in inflation to continue smoothly. As such, our expectation is that the committee will again leave all parameters unchanged. We see a further decline in the headline rate to 15.3 per cent year on year in November, on the back of the favourable base effects.”

In all the MPC meetings held so far this year, the committee had chosen to hold all parameters constant with respect to the latest domestic macroeconomic developments, and this position has continued to create the widespread view that the CBN’s continued accommodative monetary policy stance, as well as fiscal policy actions, are yielding the desired results in terms of improved output growth and deceleration in consumer price inflation.

Meanwhile, there are views that the decision may be a majority verdict because a few members may have felt bound by the Central Bank of Nigeria’s (CBN) remit to achieve and maintain price stability. However, a striking statement in the MPC communiqué, although not in the least contentious, is that “the arsenal at the apex bank’s disposal had almost become fully exhausted.”

Though the committee members have continued to support the CBN’s focused intervention programmes, which aim to improve domestic supply capacity, reduce structural bottlenecks, and increase GDP growth, there are still concerns around the demand pressure on the Naira in the exchange rate market. While highlighting that some of the major sources of FX supply to Nigeria are oil exports, foreign capital flows, remittances and non-oil exports, foreign portfolio investments, though desirable, are highly fungible.

Personal statements by policy committee members from the communique of the September meeting were more positive and recovery driven than they had been in the July edition where there was a unanimous vote to keep the rate at 11.50 percent, while underlining the disparity in growth prospects between advanced and emerging and developing countries (EMDE), due to the poorer nations’ delayed progress in vaccination delivery and limited fiscal headroom.

As such, members have voiced their support for EMDEs such as Nigeria, to pursue deliberate policies to mitigate the adverse impact of policy normalisation of advanced economies.

Two cheering developments the members of the MPC will be taking into the meeting today and tomorrow, will have to be the consumer price index (CPI) for October and gross domestic product (GDP) data for the third quarter that have been released.

National Bureau of Statistics (NBS) released the Consumer Price Index (CPI) report for October 2021 where it highlighted that the headline inflation moderated to 15.99 percent year on year, but way below analysts’ expectations, indicating a faster-than-anticipated deceleration in the rate of change in prices. However, the headline figure rose 0.98 percent on a month on month basis, reflecting the easing of FX pressures due to improved supply, as well as some supply chain normalisation.

Elsewhere, Nigeria’s economic recovery drive from the pandemic-fuelled recession of 2020 gained further stride in the third quarter of 2021 as the latest data from the National Bureau of Statistics (NBS) showed a year on year real GDP growth rate of 4.03 percent relative to a contraction of 3.6 percent in the corresponding quarter of 2020.

This performance stretched the growth trend to the fourth successive quarters, driven solely by the non-oil GDP, which reported a strong year on year growth of 5.4 percent, offsetting the contraction of 2.5 percent reported in the corresponding period of 2020, while the lacklustre performance of the oil sector GDP stretched to the sixth successive quarters, as it contracted 10.7 percent, year on year, in the third quarter of 2021, relative to 13.9 percent contraction in the same period last year.

Analysts assert that while price pressures stay relatively low, chronic supply chain bottlenecks and limited access to FX through official channels remain significant, the case for the CBN to tighten its policy on Tuesday, will stay weakened given the assumption of continued disinflation.

As Nigeria’s monetary policy committee concludes its meeting for the year on Tuesday, analysts struggle to see any decision other than an unchanged stance. While the CBN does not formally target inflation, confining itself to a reference range of between 6 percent year on year and 9 percent for the headline measure, the trajectory of inflation is such that it would be a challenge to argue for further monetary easing.

So, when the committee meets this week to carefully examine several economic indicators that will help spur growth and recovery, it will also bear in mind the apex bank’s continuing pro-growth objectives in the face of the challenging global economic climate. The apex bank is still faced with the dilemma of choosing between  tightening, loosening or holding rates to achieve its pro-growth objectives. 

It is, however, believed that the recent decline in the headline numbers will skew the voting pattern of the committee members in favour of maintaining the status quo on all the monetary policy parameters.