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The decisions of the 240th MPC meeting

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The above Monetary Policy Committee held on September 18 and September 19, 2014 having been rescheduled from the earlier announced date of September 22-23, 2014. All the members of the Committee as should be expected and applauded were present. An additional member was introduced Mr. Stanley Lawson to represent the Board of the Central Bank on this Committee. The decisions at this meeting were not underpinned by unanimity as witnessed at the last meeting held in July which is a welcome reflection of independence as exercised by members a development which must be encouraged as that in my view assures all that decisions would be taken based on what is considered the best interest of the Nigerian economy and not in anyway circumscribed and dominated with the respect of any authority.

Against the background of considered developments in the world and particularly the Nigerian economy the following decisions were reached as reported. The Monetary Policy Rate (MPR) was retained at 12 per cent. This is the rate at which the Central Bank would lend to financial institutions that approached it for accommodation and therefore represents a floor to interest rates in the economy. It would be recalled that expectations were heightened following the last meeting that the MPC would commence the gradual reduction of this rate consistent with the indication given by the Governor of the Central Bank in his five year agenda. And since then the Governor himself had assured all concerned that the intention to witness a decrease in this rate remains intact but pleaded with compatriots to exercise patience as this rate can only be reduced advisedly at the most appropriate time reminding all that the time horizon under consideration is five years. But as it turned out the Governor almost had his nose bloodied as by a margin of one a hold decision was taken. One can imagine the uproar if the MPR was increased following this meeting. We must not make any mistake about that, the rates as they remain today are hardly sustainable and not conducive for the much desired inclusive growth of the economy. Of course the asymmetric corridor of plus/minus 200 basis points around the midpoint rate was as has been the case lately retained.

The Public Sector Reserve requirement fixed at 75 per cent was retained. It is interesting to note as reported that one member of the Committee even indicate his preference for a hike on this rate as a result of the prevalent liquidity situation in the economy. Well this rate could have been increased to the ultimate 100 per cent if the Committee bowed to the pressure of excess liquidity in the banking system which as reported amounted to a whopping N 300 billion. But as we have observed elsewhere these are initiatives which are peculiar to the Nigerian monetary policy stance and may be a few other emergent economies but rarely heard of as part of the complement monetary policy instruments in advanced and matured economies. In this wise those who have been around for a while would recall the Stabilization Securities of some years past. With five member of the Committee voting to increase the CRR requirement from the current 15 per cent. It is also interesting to note that one member voted for an asymmetric corridor around the MPR which is a novel development as one is not aware that indicative interest rates are accorded that sort of treatment.

The reasons for these decisions were generously canvassed as reported but let’s step back and consider for a moment the expectations amongst informed commentators in anticipation of the outcome of these deliberations. It was expected that because of the underlining inflationary pressure; which has meant that the rate of inflation as provided by the National Bureau of Statistics has witnessed a gradualist upward movement for a period of over five months consecutively that a further tightening was expected. With Bismarck Rewane at his popular Breakfast presentation at the Lagos Business School predicting an increase of 300 basis points on the CRR on Private sector deposits from 15 to 18 per cent. There was also the fear that insurrection countering related expenditures would also contribute to the stoking of inflationary pressures. And therefore most commentators including BGL Plc. expected a hold decision at the meeting as it turned out. We might want to review albeit cursorily some of the key reasons provided by the MPC as informing the decisions it had taken.

At the external sector the termination of quantitative easing by the Fed which is expected by October, 2014 was seen as having the potential of reversing investment flows from the international sector which could be destabilizing. Surprisingly the report on the performance of the oil market painted a reassuring and robust picture with the oil sector reported to have grown by 5.14 per cent in the second quarter of the year. One must confess that this was contrary to expectations as what was widely reported before the meeting is that the American government has shifted its preference to Angolan oil as it blends better with the Shale oil and that this development had undermined the demand for Nigerian oil.

Internally, besides the surprise of non-inflationary growth there was stability and sometimes even improvement in some of the critical indices. The annualized growth in M2; the broad measure of money supply was reported at 4.41 per cent against a forecast benchmark growth of 14.52 percent while money market interest rates remained within the MPR corridor. The Naira exchange rate was reported as remaining consistently stable in all segments of the foreign exchange market with the highest recorded premium of 7.45 per cent between the official rate and the rates at the Bureau de change segment of the market. The Reserves increased to 40.7 US dollars at the end of July, 2014 adequate cover for seven months imports.

A surprising aspect of the pertinent issues for considerations was the fact that came to light that banks in the country are awash in liquidity to the tune of N 300 billion while the real sector of economy that should account for the massive jobs we are all eager to witness are languishing for credit. This development is encouraged by the fact of the competitive returns on available fixed income securities and other available SDF (Standing Deposit Facility). We encourage the Central Bank in whatever it does not to return to the discredited practice of sectorial guidelines on lending which is problematic to track but to attempt moral suasion and where practicable to adopt ingenious methods to make such instruments not as readily accessible. It would be difficult to try reducing the returns on such securities as it might lead to a run by foreign investors as they vote with their feet.

The short to medium term outlook is reassuring  despite the fear of worsening inflationary pressures arising from the pending redemption of AMCON bonds estimated at N 866 billion in October, 2014 and liquidity surfeit arising from election related expenditure. The country it would appear has overcome the Ebola scourge; fingers crossed as the Minister of Health has just given the country a clean bill of health and the war against Boko Haram seems after all winnable and hopefully the disruption to agricultural production will in due course be brought to an end positively impacting the inflationary pressures. The strike which had disrupted gas supplies to the Power generation companies has just been called off and normalcy is expected to return as power availability improves resulting in sustained productivity. We look forward to improvement in the performance of the economy leading up to the next meeting of the MPC while we continue to applaud and appreciate the good job done so far by the Committee.

BONIFACE CHIZEA