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Nigeria MPC decides against premature rate cut at November meeting

The members of Monetary Policy Committee (MPC)

Nigeria’s central bank left its key interest rate at a record high of 14 per cent to fight inflation after Africa’s largest economy expanded for the second straight quarter in the three months through September.
The Monetary Policy Committee (MPC) shrugged off pressure to cut rates to stimulate economic activity, holding benchmark rate for the eighth successive time, in line with expectations of five of six economists polled in a BusinessDay survey who all expect a rate cut in the first quarter of 2018.
“The committee appraised potential policy options in terms of the balance of risk, took note of the gains made so far as a result of its earlier decision, the stability in the foreign exchange market and the moderate reduction in inflation,” Emefiele told reporters Tuesday.

READ ALSO: CBN mute on FX as MPC meeting underwhelms
“While tightening will strengthen the impact of monetary policy on inflation, with the complementary effect of capital flows per exchange rate stability, it could also potentially dampen the outlook for growth and financial stability, as this will constitute a risk to the productive sector of the economy.
“Whereas loosening will strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing, it could nevertheless aggravate the upward trend in consumer prices and generate exchange rate pressures,” Emefiele said.
The governor added that “Loosening will worsen the current account balance of the country through increased importation.”

READ ALSO: Mixed expectations as MPC decides on interest rate today
The central bank has kept the monetary policy rate unchanged since July 2016, balancing the need to fight inflation and stabilize the naira with trying to support an economy emerging from its worst slump in 25 years.
“Our base case remains that with inflation exhibiting some downward stickiness, we will have to see a clear improvement in inflation before the CBN can cut interest rates,” said Razia Khan, managing director and chief economist, Africa Global Research, Standard Chartered Bank, London.
“We see this easing as a key theme for 2018, but to have moved today – with inflation still relatively sticky – would have been premature,” Khan said.
While price growth slowed to 15.9 per cent last month, it has been above the authorities’ target range of between 6-9 per cent for more than two years, following a 40 per cent naira devaluation against the dollar and higher fuel costs.
“At some point I expected them (MPC) to ease at this meeting,” said Sunmbo Olatunji, head of treasury at Access bank.
However, “It is pretty obvious from the governor’s body language that they (MPC) will loosen up at the next meeting,” Olatunji said. The MPC is scheduled to meet next in January, according to a meeting calendar available on the CBN’s website.

READ ALSO: MPC cuts policy rate by 100 basis points to 12.5%
The CBN Governor Emefiele said that the regulator is correcting anomalies it found in the sale of Telecommunications firm 9 mobile.
This is because the regulators which include the Nigerian Communications Commission (NCC) and the CBN see 9 mobile as a systemically important Telco in Nigeria, according to Emefiele.
“We had to intervene to stabilize 9 mobile and see to it that Banks and creditors do not dismember the company, maintain confidence and ensure a successful transfer of ownership,” Emefiele said.
Emefiele said that to his knowledge Barclays bank had yet to pull out as a financial adviser to the sale of 9mobile.
“We are optimistic that the sale process is on track and determined that it will conclude by December 31, 2017. Everything is on course,” Emefiele said.
BusinessDay reported exclusively yesterday that the NCC wrote a joint letter with the CBN to GT Bank, which is the facility agent for the 9mobile syndicated loan.
In the letter, the two regulators expressed displeasure with the “unwillingness of Barclays Africa” to follow due process in the bid.
This came after the CBN and NCC received reports and petitions from bidders and stakeholder questioning the transparency of Barclays bank.

CBN and NCC stated in the letter dated November 4, 2017, that they had made it clear from the beginning that the bidding process for 9mobile must be “transparent and fair, with the financial and technical capabilities of the final bidders without question.” The regulators, therefore, have reason to question the criteria for selection if companies with strong financial standing and advanced technical capabilities were dropped from the final bidding process.

They said they now have “serious concerns” since the appointment of Barclays Africa as financial advisers.

9mobile which was formerly Etisalat was forced to rebrand after its Abu Dhabi arm pulled out and new board members were appointed to run the affairs the company following failed negotiations with its lenders over a missed payment of the $1.2billion loan taken out from a consortium of 13 Nigerian banks in 2013. The telco is currently facing serious challenges as its subscriber base has dropped significantly from about 21million to 17,203,940 million subscribers on the network according to data on the NCC website.
At the next meeting, five of the current eight-man committee would have retired and made way for new appointees, according to Emefiele.
The committee presently comprises of Godwin Emefiele, Sarah Alade, Suleiman Barau, Okwu Nnannau, Adebayo Adelabu, Daniel Nwaobia, Stanley Lawson, Adedoyin Salami, Dahiru Balami, Chibuike Uche, Shehu Yahaya, and Abdul Garba.
Last month, President Muhammadu Buhari wrote to the Senate seeking confirmation of Aishah Ahmad as CBN’s deputy governor to replace Sarah Alade who retired early last year and also confirmation of appointment members of the CBN’s monetary policy committee.
Other nominees were Adeola Adenikinju, Aliyu Sanusi, Robert Asogwa, and Asheikh Maiduguri.

“Significantly, the make-up of the MPC is to change meaningfully from next year, with five of the nine MPC members present at today’s meeting, retiring. In our view, this might lend itself to a slightly more dovish stance on the part of the MPC,” Khan said.
“The considerations for the MPC are unlikely to change meaningfully, however. From yesterday’s weak Q3 GDP print, it is clear that action to boost the economy is needed. What is less clear is the form that the action should take,” Khan added.
The National Bureau of Statistics (NBS) said Monday that GDP expanded 1.4 per cent in the third quarter, the second straight quarter of growth, as the oil and agricultural sectors helped boost growth despite a setback in the non-oil sector.

Market reaction to the MPC decision was mixed as bonds rose while stocks sold off.

Bullish sentiments returned to the Treasury bills space on Tuesday, as the 1M (-0.72%), 3M (-0.49%), 6M (-0.02%) and 9M (-0.02%) tenors recorded declines. Conversely, investors were bearish towards the longer end of the curve, causing the yield on the 12M instrument to advance by 0.20 per cent. The average T-bill yield at the close of trades however declined to 17.02 per cent (-0.21%) from its previous close of 17.23 per cent.

There was an increase in demand for Treasury bonds which resulted in the decline of the average bond yield to 14.91 per cent. At the close of trades, the yield of the JAN-2026 instrument inched upward while the MAR-2036 and MAY-2018 traded flat. Fourteen (14) bonds recorded declines in yield with the FEB-2020 (-0.35%) bond paring the most.

Meanwhile, stocks closed in the red today as the NSE All-Share Index dipped by 0.52 per cent, settling the YTD (Year to date) return at 36.19 per cent.

The volume of transactions and market turnover however recorded respective advancements of 23.58 per cent and 34.33 per cent. The bourse closed with nineteen (19) gainers and twenty-two (22) losers, settling its market breadth at 0.86x.

“We would need to ease but the MPC is convinced that the time to do that is not now,” said Bismarck Rewane, CEO of Lagos based financial advisory, Financial Derivatives Company.

“If not now, when? When are you going to apply drugs to a patient is it when the patient is well?” Rewane asked rhetorically.