MPC attendance, decisions, voting pattern and expectations for 2015 (1)

Nigeria is confronted with two important issues in 2015. These are the general elections and the implications for fiscal policy on one hand, and the concern about declining crude oil prices and the impact on the budget on the other. These and other related matters are issues that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will be looking at critically in the new year. Usually, central banks worldwide are observant of fiscal policy with particular focus on budget consolidation in the short term and the sustainability of public finances in the long term. Therefore, the general elections and the anxiety about oil prices have implications for fiscal policy and by extension on monetary policy. The decisions that will be taken by the MPC in 2015 will as usual ‘create news’ but whether such news will ‘reduce noise’ and volatility will depend on how expectations are managed.

To gauge the likely path of monetary policy this year, it is important to dissect activities of the MPC by looking at the attendance, decisions and voting pattern since 2011. It is first important to note that in line with global best practices, the CBN is now transparent in the conduct of monetary policy through the MPC.

Some years ago, precisely on 29 October, 2007, in an article titled ‘Time to Restructure the Monetary Policy Committee’, Ijeoma Nwogwugwu noted in her concluding paragraph that “save for Chukwuma Soludo, the Central Bank governor, members of the committee do not make comments on issues of economic importance and we don’t even know who they are”. However, things have changed as we now know the committee members and often read their views on the economy as published in the minutes released by the MPC. The improved transparency in the conduct of monetary policy is made possible by law as section 12(2) of the CBN Act 2007 provides that the MPC shall consist of 12 members, the CBN governor who is the chairman, the four deputy governors, two board members of the CBN, three members appointed by the president of the Federal Republic of Nigeria and two appointed by the CBN governor. The five members appointed by the president and governor are herein referred to as ‘external’ members while the governor, deputy governors and the two board members are ‘internal’ members.

With respect to the turnout of the MPC members in 2011 (the committee meets six times in a year except when it convenes extraordinary meetings), all the 12 members were in attendance in the first four meetings while 11 attended the last two meetings. In 2012, the committee had a full house only in the third meeting in May while 11 members attended the first and fourth meetings. 10 members were present in the second and fifth meetings and the number dropped to nine in the sixth meeting. In 2013, the committee had a full house in three of its meetings while 10 members attended the three other meetings.

The attendance in 2014 was less than impressive as the committee had a full house only in the September meeting. Specifically, in the January and March meetings only eight members were present while nine and 10 members attended the third and fourth meetings and 11 members attended the last meeting in November. Overall, the committee failed to have full representation in some of its meetings, especially in 2014, due mainly to the expiration of the term of some members and the time lag between when they leave and when they are replaced. Therefore, for robust deliberations, debates and overall decision-making process, it is important that members whose tenures are to end, say, in three months, have named replacements so that there won’t be a vacuum when they finally exit the committee.

The decisions on interest rate showed that in 2011 the MPC did not cut the monetary policy rate (MPR). It however raised the rate six times and left it unchanged once. The policy stance in 2012 and 2013 saw the MPC maintaining the MPR at 12 percent all through the two years. This posture was retained in 2014 until the last meeting in November when the policy rate was increased by 100 basis points to 13 percent due to dwindling oil prices and need to preserve the exchange rate. In sum, between 2011 and 2014, the committee increased the MPR seven times; left it unchanged 18 times and did not reduce it in the period. Hence, it means that the apex bank through its MPC has preference for price stability.    

Given this preference for price stability, it is important to understand the voting pattern and ascertain if the structure of the MPC plays a role in the observed decision pattern. The breakdown of how the individual members voted in the period showed that all the internal members had similar voting pattern while one or two external members appointed by the CBN governor also voted like the internal members. However, the external members appointed by the president sometimes had dissent votes. In 2011, all the members, both internal and external, did not vote to cut interest rate, although all the internal members voted to increase interest rate six times and to maintain it once (including during the extraordinary meeting in September).

MAXWELL EKOR