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MPC: Analysts Allay Fears Over Impact On Economy



Analysts have said the one missed meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria would not impact the economy, as they noted that the MPC would most likely have maintained status quo if it had met.

The CBN in a statement on Monday had noted that the apex bank will continue to run with the decisions made at its last meeting in November last year, when it left the Monetary Policy rate unchanged at 14 per cent, the Cash Reserve Requirement at 22.5 per cent, liquidity Ratio at 30 per cent and the asymmetric corridor at +200 and -500 basis points around the MPR.

Chief Economist, Africa at Standard Chartered Bank, Razia Khan in an emailed response to LEADERSHIP noted that “the one missed meeting because of the lack of the quorum should not matter too much, given that it is still early in the year, and the impact of the recent fuel shortages on prices must still be assessed.”

Likewise, chief executive of Cowry Assets Management, Johnson Chukwu while noting that it was unlikely that the MPC would tweak monetary policy if it had met, said the inability of the committee to hold its first meeting of the year is not likely to have negative impact on the economy.

Khan however noted that “if a second meeting is missed because of the lack of appointments it would draw greater attention to the functioning of Nigeria’s political system, and the impact that it often has on the economy.”

Chief executive of Afrinvest West Africa, Ike Chioke, said while there may be no immediate effect on the economy, a lingering of the situation would see investors flocking out of the country. Ike noted that if the Senate and the presidency continues to hold their stand, there won’t be an MPC in the country. The act of the CBN stipulates that the MPC meets six times in a year and at least four times. It also makes provision for emergency meetings.

On his part, managing director and chief executive of Financial Derivatives Company, Bismarck Rewane said “once investors believe that governance has broken down in the country it could lead to an erosion of confidence. If there’s an emergency, what policy adjustments will the central bank make and how quickly?”

Chief economist at Vetiva Capital, Michael Famoroti, noted that the development is a “blow to the idea of central bank independence in the country and could erode confidence. The key thing to watch for is how long the impasse continues. It would signify a severe political disruption in monetary policy – an unwelcome one in a pre-election year – and could cause investor jitters that put pressure on the currency and the economy.”

The MPC had to cancel the January meeting scheduled to hold on Monday and Tuesday this week as its members could not form a quorum. At least six members of the MPC are needed to approve an interest rate decision, but at the moment there are only four.

The Senate is refusing to approve presidential nominees, including those for the MPC, because it believes Buhari has sidestepped their authority in appointing his choice of head of the financial crimes watchdog in an “acting” capacity, after he was twice blocked by the Senate. Although the CBN plans to hold an emergency meeting next month, this still hangs on the expected confirmation by the Senate.

Nigeria emerged from recession last year but growth is still fragile and inflation – which has been slowing – needs to fall faster for the central bank to be able to alter its hawkish stance on interest rates, analysts say. Investors shunned Nigerian assets over the past three years and have only started to return after the naira was floated for them last year. Some are still on the sidelines waiting for stability.

The bank has kept rates at 14 percent for over a year to attract foreign investors into bonds to support the naira. But Abuja wants to see rates come down to lower government costs at a time when inflation is in double digits and the 2019 presidential election looms.





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