Inflation MPC

Inflation tops discussion as MPC meets today

Nigeria’s Monetary Policy Committee (MPC) commences its second meeting for the year 2021 today, and will tomorrow announce policy decision on interest rate direction for an economy that sluggishly exited recession in the fourth quarter of 2020.

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Maintaining the status quo may likely play out after the meeting, as most analysts polled by BusinessDay expect a ‘Hold’ on the benchmark interest rate due to rising inflation.

Nigeria’s inflation rate increased to 17.33 percent in February 2021, from 16.47 percent recorded in the previous month, according to the National Bureau of Statistics (NBS).

While the Central Bank of Nigeria (CBN) does not formally targets inflation, confining itself to a reference range of between 6 percent year-on-year (y/y) and 9 percent for the headline measure, the trajectory of inflation is such that it would be a challenge to argue for further monetary easing, analysts at FBNQuest said.

“Nigeria’s MPC meets next (this) week, and we struggle to see any decision other than an unchanged stance,” the analysts said.

At the last MPC meeting in January, the committee retained the Monetary Policy Rate (MPR) at 11.50 percent, with the asymmetric corridor remained at +100/-700bps around the MPR.

Also, the Cash Reserve Ratio (CRR) and Liquidity ratio were left unchanged at 27.5 percent and 30 percent, respectively.

“I expect the MPC to hold the rates in March. Yes, inflation rate is rising but economic recovery is still weak at 0.11 percent in previous quarter,”Uche Uwaleke, professor of capital market and president, Capital Market Academics of Nigeria, said.

He noted that, inflationary pressure was more from cost push factors, saying, “I expect that the MPC will advise the CBN to continue to use development finance initiatives through increased interventions to support economic recovery, especially via stimulation of agricultural output to stem rising inflation.”

Nigeria’s Gross Domestic Product (GDP) grew by 0.11 percent y/y in real terms in the fourth quarter of 2020, representing the first positive quarterly growth in the last three quarters.

Though weak, the positive growth reflects the gradual return of economic activities following the easing of restricted movements and limited local and international commercial activities in the preceding quarters, the NBS report noted.

Taiwo Oyedele, head of tax and corporate advisory services at PwC, is of the view that the rising inflation will be of concern to the MPC and certainly does not support any expansionary policy changes, while on the other hand a contractionary policy adjustment will hurt the fragile economic growth and recovery. “So, I expect the MPC to maintain status quo,” he said.

Given the fact that the rise in inflation has been due to cost-push factors rather than demand pull factors, Godwin Emefiele, governor of the CBN, said MPC had placed greater weight on utilising tools that would strengthen the nation’s productive base as a nation.

These measures, such as the intervention programmes being implemented by the bank, will help to improve output by enabling improved production of staple food items. This would ultimately help to support lower food prices and a more favourable outlook for food inflation, Emefiele said at the last MPC meeting.


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