MPC expected to hold but no members, meeting calendar

As the Nigerian financial sector awaits the initiation of the first Monetary Policy Committee (MPC) meeting for the year 2024 in January, uncertainty looms large.

The calendar of meetings, which crucially guides the financial landscape, has remained stagnant, and unrevised since the previous year. Additionally, the committee’s composition, essential for decision-making, is yet to be constituted.

The CBN Act 2007, outlining the functions and responsibilities of the MPC, emphasizes its crucial role in aligning monetary policy with the broader economic goals of the country. The committee is tasked with implementing measures that contribute to the stability of prices, thereby supporting the overall economic policy objectives of the Federal Government.

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In adherence to the provisions outlined in the Central Bank of Nigeria (CBN) Act, the Monetary Policy Committee (MPC) is directed to convene at least four times annually. The Act specifies that the governor, or in the governor’s absence, the deputy governor responsible for monetary policy, possesses the authority to summon a meeting, provided a notice of not less than seven days is given.

The stipulations of the Act extend to the composition of the MPC meetings. A quorum of six members is required, with two members mandated to be either the governor and a deputy or two deputy governors. The responsibility of chairing the meetings falls to the governor, or in the governor’s absence, the deputy governor responsible for monetary policy.

This framework ensures a regular and structured engagement of the MPC to deliberate on critical monetary policy matters. The Act’s provisions underscore the importance of maintaining a minimum number of attendees to ensure robust discussions and decision-making.

Yemi Cardoso, the Governor of the Central Bank of Nigeria (CBN) and the Chairman of the MPC, appears undeterred by these uncertainties. Taking a resolute stance, Cardoso has been consistently tightening liquidity through Open Market Operations (OMO) as part of a strategic move to curb inflationary pressures.

According to the CBN, OMO is the primary instrument of monetary policy under the market-based approach to monetary management in Nigeria, but it is being complemented by reserve requirements, discount window operations, foreign exchange market intervention, and movement of public sector deposits in and out of the domestic money banks (DMBs).

This development comes against the backdrop of the unaltered MPC meeting schedule and the absence of officially appointed committee members, suggesting a potentially delayed start to crucial policy discussions at the beginning of the year. Cardoso’s commitment to tightening liquidity underscores the CBN’s dedication to addressing inflationary concerns, despite the procedural uncertainties surrounding the MPC’s 2024 sessions.

The MPC consists of the governor, four deputies and two bank directors, plus five outsiders appointed by the president and the governor. The current five external members were picked by former head of state Muhammadu Buhari, and Emefiele.
The MPC needs six of the 12 to be present to constitute a quorum, so there’s no risk that next month’s meeting won’t be properly constituted, even if new external members have not been named by then.

A current current external member of the MPC told Bloomberg they have not been invited.

“CBN now employing orthodox monetary tools for liquidity management,” Bismarck Rewane, managing director/Chief Executive Officer of Financial Derivatives Company Limited, said.

The CBN under Cardoso has issued OMO three times in the fourth quarter (Q4) of 2023 and one in January 2024. He noted that the CBN held OMO auction with a top rate of 17.5 percent for the one-year tenor, attracting an oversubscription of N350 billion.

“Another round of OMO has been approved to further reduce excess liquidity, Cardoso said in November 2023. On January 11, 2024, the CBN conducted the first OMO sales of the year worth N357.2 billion.

“We have seen increased traction in the use of OMO to curb excess liquidity, with the CBN conducting four since the start of this current administration,” analysts at CardinalStone said.

However, it is unclear if the CBN’s action is a de facto monetary policy, where OMO is deployed to mop up excess liquidity in the banking system without changing the Monetary Policy Rate (MPR). Importantly, policy communications by the CBN will be a key element of the monetary policy framework in 2024, the analyst added.

Ayodele Akinwunmi, the Relationship Manager in Corporate Banking at FSDH, the statutory and mandatory nature of the MPC meetings, underscoring that despite uncertainty about this month’s schedule, the meeting is bound to take place. He urged stakeholders to await the official announcement to confirm the meeting date.

Anticipating the policy direction, Akinwunmi suggested a need for a stringent approach given the prevailing economic conditions. He predicted a tight monetary policy, potentially featuring an increase in rates and the introduction of new measures. Akinwunmi explained that these measures are likely to align with restrictive policies, reflecting the current tight market conditions.

Elaborating on the rationale behind a stringent monetary stance, he highlighted the necessity of addressing inflation and achieving exchange rate stability in the current macroeconomic environment. Akinwunmi asserted that a tight monetary policy is crucial to navigating the challenges and fostering economic stability.

Ayodele Akinwunmi, the Relationship Manager in Corporate Banking at FSDH, noted the statutory and mandatory nature of the MPC meetings, underscoring that despite uncertainty about this month’s schedule, the meeting is bound to take place. He urged stakeholders to await the official announcement to confirm the meeting date.

Anticipating the policy direction, Akinwunmi suggested a need for a stringent approach given the prevailing economic conditions. He predicted a tight monetary policy, potentially featuring an increase in rates and the introduction of new measures. Akinwunmi explained that these measures are likely to align with restrictive policies, reflecting the current tight market conditions.

Elaborating on the rationale behind a stringent monetary stance, he highlighted the necessity of addressing inflation and achieving exchange rate stability in the current macroeconomic environment. Akinwunmi asserted that a tight monetary policy is crucial to navigating the challenges and fostering economic stability.

Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, has weighed in on the current status of the MPC meeting schedule, expressing optimism about the adherence to statutory requirements.

According to Yusuf, the MPC is mandated by statute to convene a minimum of four times annually. With the year just commencing, he remains confident that there is ample time for the committee to fulfil its statutory obligation of holding the requisite number of meetings.

Elaborating further, Yusuf pointed out another statutory requirement concerning the publication of the meeting calendar. By law, the MPC is expected to release the schedule at least a week before the inaugural meeting of the year. Yusuf emphasized that, given the early stage of the year, there is still an opportunity for the committee to meet this obligation and publish the calendar in accordance with statutory provisions.

The MPC last met in July, when it increased the rate for the eighth straight time to 18.75 percent, as part of efforts to rein in inflation.

Nigeria’s inflation increased to a new 20-year high for the 12th consecutive month. It rose to 28.92 percent in December 2023 as against 28.20 percent in November 2023, according to the National Bureau of Statistics (NBS).