The Central Bank of Nigeria (CBN) has postponed a meeting of its Monetary Policy Committee (MPC) for a second time since Governor Olayemi Cardoso was nominated to the post in September, leaving investors guessing as there was no official communication.
The delay comes as the foreign exchange backlog worth several billions of dollars has not been fully cleared. The CBN had early this month cleared over 75 percent to 80 percent of outstanding matured FX forwards contracts with banks.
The MPC, which usually meets bimonthly, has not met since July, when it raised the monetary policy rate (MPR), also known as the main interest rate, by 25 basis points to 18.75 percent. It was expected to hold its last meeting for the year this week (Monday and Tuesday).
On September 26, Cardoso announced plans to clear about $7 billion in FX backlog. Wale Edun, minister of finance and coordinating minister of the economy, had said the government was expecting $10 billion to ease dollar liquidity in the FX market.
“I presume the CBN has postponed its meeting because it has not yet secured the US dollars it hopes to use to bring liquidity to the US dollar market,” Charlie Robertson, head of macro strategy at FIM Partners UK Ltd, said in an emailed response to BusinessDay.
The “MPC is not holding” a meeting this week, Isa Abdulmumin, the spokesman for the CBN, said by text message on Monday, according to Bloomberg. He didn’t give a date for when the next meeting will be held.
Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, said the corporate communication of the CBN should be doing better communication because there is already a calendar for the MPC meeting.
He said: “The nation deserves an explanation because this is almost a statutory kind of meeting that economic players and even the market look up to, especially now that we have a new administration. It has a policy signalling value for economic players whether domestically or externally.
“So if there is going to be a postponement, I think there should have been proper communication to journalists, business community and investing public that this meeting has been postponed and a reason should be given. What I am thinking is that perhaps the CBN governor and deputies are new, maybe they are still struggling to find their feet and look at all the issues properly before they begin to make pronouncements.”
Uche Uwaleke, professor of Capital Market at the Nasarawa State University Keffi, said the postponement of the MPC for the second consecutive time could be a blessing in disguise “in the sense that if the MPC had held in September, it was most likely the MPR would have been jacked up, thereby further increasing the cost of doing business and reducing access to credit,”
Kaliba Bilala, founder of Tanabit, financial data analytics company, said despite the MPC not sitting for its rate meeting, the reality is that interest rates in the short end and long end of the Nigerian yield curve are rising.
“The CBN’s silence means that market watchers are now required to do the extra hard work of monitoring and interpreting financial markets data to decipher the direction of monetary policy. Merely waiting for the MPC to sit and communicate its decision on MPR (and other variables) to the market is not sufficient, as happened under the past governors,” he said.
Sesan Adeyeye, a portfolio manager at ARM HoldCo, said that investors anticipated the MPC meeting to hold, given the new governor’s appointment and their desire to gauge his approach.
Market expectations for the MPC’s subsequent meeting, whether it takes place this month or next, are largely hawkish, he said.
“Based on Cardoso’s public statements, we can infer the potential outcomes of the meeting. His comments regarding excess money supply as a driver of inflation suggest the possibility of adjustments to monetary policy parameters, though the decision ultimately rests with the MPC,” he said.
He said CBN’s not holding the meeting impacted the equities market. “Today’s trading session was relatively quiet, with a 15 bps decline in ASI as investors awaited the meeting’s outcome. Similarly, when the meeting was postponed by an hour in July, the market reacted the following day.”
Despite their low level of activity, foreign portfolio investors are seeking clarity on the MPC’s decision, Adeyeye added.
He said the market had been anticipating a rate hike. “We witnessed OMO auctions two weeks ago and a 364-day T-bills auction with yields as high as 16-17 percent (used as a liquidity mop-up mechanism), suggesting the possibility of an inverted yield curve, where short-term rates exceed long-term rates. This move aims to curtail inflation by reducing money supply through attractive returns on short-term instruments.”
According to him, the market’s primary need is assurance and insight into the new government’s plans to boost investor confidence.
“For this week, we expect a couple of factors to impact investors’ sentiment. Specifically, we anticipate a downturn in market momentum, driven by concerns around the inconsistency of the MPC (as it further postponed its next meeting scheduled to hold during the week),” analysts at Lagos-based United Capital, said.
Investors have been looking to the MPC meeting for signals on how the central bank will rein in inflation that’s accelerating at the fastest pace in almost two decades. They’re also anticipating an update on the overhaul of the nation’s foreign-exchange controls initiated by President Bola Tinubu in June.
A Bloomberg survey of 12 economists had forecast the central bank will raise its benchmark rate by as much as 325 basis points from 18.75 percent.