John Omachonu
The Central Bank of Nigeria, (CBN)’s Monetary Policy Committee members are expected to make tough choices at the two-day, third meeting for the year starting today, between maintaining the statusquo or will have to thinker with the monetary policy rate.
If the individual statements of members at the March meeting were anything to go by, then, the MPC members may be forced to tinker with the anchor rate for the first time after over two years as global inflation concerns and responses may put the local economy in a precarious situation.
The Monetary Policy Rate, (MPR) is the anchor rate set to influence availability and cost of money and credit by banks to promote healthier economy.
It serves as the anchor the banks use in their borrowing of funds to customers in order to affect the evolution of the main monetary valuables in the economy. The MPR currently is at 11.5 percent
Some members expressed worries over the fragility and vulnerability of the economy to external shocks and called for deep reflections on the path of monetary policy in 2022 in view of limited choices in the monetary policy space.
They were unanimous in their submissions that issues like the raising of the benchmark short-term rate by the Fed Reserves recently and Russian invasion of Ukraine may have compounded challenges bedeviling the local economy as the risks tend to be spreading across both growth and inflation objectives.
The economy is facing rising rate of deficit budget, unemployment, shortage of foreign exchange, among others,
In the forex market, for instance, the Naira is at the psychological resistance rate of N600/$ and Diaspora flows are falling below expectations.
Similarly, the nation’s external reserves, reeling under the rising inflationary pressures, dipped $216.9million, within the last four days, from $39.01 billion as at May 13, to $38.795 billion as May 19, representing a 0.56 percent decline
Also, Nigeria, the leading African economy and most populous on the African continent, was recently removed from the list of emerging markets sovereign recommendations that investors should be ‘overweight’ in by JPMorgan for her inability to take advantage of the current oil high prices at the international markets.
JPMorgan is a global leader in financial services, offering solutions to the world most important corporations, governments and institutions in more than 100 countries.
According to Reuters, the bank analysts said Nigeria’s national oil company (NNPC) did not transfer any revenue to the government from January to March this year due to petrol subsidies and low oil production.
The implication is that no single dollar had been paid into the federal government account from January to March this year due to petrol subsidies and low oil production despite the rise in crude oil price in the international market
Ironically, the same country has been experiencing ‘naira and foreign currencies’ rains, particularly among politicians and government appointees, while the country’s expenditure on subsidies has hit N6 trillion because of the price of crude oil which has remained above $100 per barrel.
Analysts use overweight and underweight to broadcast recommendations on buying or avoiding stocks of certain sectors.
They attach an overweight recommendation to a stock that they believe will outperform its sector shortly.
For Nigeria with higher deficit budget, sourcing funds from both local and international markets have become inevitable, and the developments, both within and outside the economy might discourage investors.
In fact, the bank further added that it moved Nigeria out of the ‘overweight’ category due to its fiscal woes amid a worsening global risk backdrop that has raised market concerns despite a positive oil environment.
It is against this backdrop that the MPC members are expected to brainstorm on the appropriate policy measures for economic stability
Contributing at the March meeting, Adamu, Edward Lametek said, “overall, I see the need for deeper reflections on the path of monetary policy in 2022 as there might be no easy choices given that risks are spread across both growth and inflation objectives. The extant approach by the Bank which seeks to ensure adequate liquidity in critical sectors has proved to be optimal, even though further innovations may be needed during the year to limit the impacts of the unfavourable external conditions.”
For Adenikinju, Adeola Festus, “The speed of normalisations indicated by the Federal Reserves and other central banks in advanced economies also means that we cannot realistically keep interest rates at the present level in the face of rising domestic prices.
“I am also concerned about the rising share of government in total credit to the domestic economy. Credit to the government in February when annualized is far above the provisional benchmark for 2022. The rise in public debt is a constraint on future income and economic growth.
“I believe that we must signal to the government the costs of deficit financing and continue to prod the government to explore alternative financing mechanisms for infrastructural spending.
“As much as I am concerned about the current fragility of our growth recovery as well as the underlying driver of current inflation, there is a need for the Bank to be prepared to anchor inflation expectations in the economy. The Bank must signal a change in the current direction of monetary policy if the current inflation trend endures.”
According to Ahmad, Aishah N, “While the recent spike in domestic prices may be transitory, it is prudent to take forward-looking policy decisions to mitigate unforeseen adverse price developments and manage inflation expectations.”
Asogwa, Robert Chikwendu, noted that “Available data show that the Federal Account Allocation Committee (FAAC) distribution for February 2022 represents a decline of 10.25 and 9.98 percent in total amount disbursed, compared with the corresponding months of 2021 and 2022. This early warning trend indicates that unless there are strengthened tax collection efforts and/or targeted expenditure realignments, the budget deficit levels in 2022 will surpass the 57.3 percent recorded in 2021.
“Already, Nigeria is being mentioned as one of the countries that may likely move into debt distress soon, given the staggering 92.6 billion dollars, public debt stock as at the end of 2021.”
According to Sanusi, Aliyu Rafindadi, “Given my analysis of the available data, coupled with the staff projections of inflation, I am convinced that the observed upward trend in the core inflation may be reflecting the presence of second-round effects.
“In addition, being a pre-election year, a significant liquidity injection is expected, which a forward-looking monetary policy has to appropriately respond to.”
The chairman of the committee and governor of CBN, Godwin Emefiele said that he noted the “continued improvement in short-term economic outlook, which, though positive, is fragile and should not be derailed.
“I acknowledge the recent unexpected rise in domestic inflation, which though, transient could justify arguments for tightening. But, importantly, economic recovery is still fragile, while per capita income and unemployment rate are at unacceptable levels.
My inclination today is to carefully balance the objective of price stability with output growth. Again, the dilemma of the trade-off between inflation and output remains extant, and I believe that a rate hike could upend our modest recovery. I am of the view that the current levels of policy parameters are appropriate to tackle emerging shocks, as the CBN strengthens its intervention programmes.
“I prefer to maintain the prevailing stance in order to foster price stability and output stabilisation without introducing disruptive policy shocks.”
Analysts are looking forward to voting pattern tomorrow when the meeting would have come to an end, given the internal and external economic headwinds and political uncertainty.