MPC Retains Policy Rate at 14% as Uncertainty Looms over Next Meeting


Ndubuisi Francis in Abuja, Obinna Chima and Emma Okonji in Lagos

Contrary to expectations by some market analysts that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) would cut its policy rate, the committee Tuesday rose from its last meeting for the year and retained Monetary Policy Rate (MPR) at 14 per cent.

The MPC also retained the Cash Reserve Ratio (CRR) at 22.5 per cent, the Liquidity Ratio (LR) at 30 per cent and asymmetric corridor around the MPR at +200 and -500 basis points.

But this was even as the MPC faced an uncertain fate over whether it can form a quorum at its next meeting in January next year, following the refusal by the Senate to consider for confirmation President Muhammadu Buhari’s nominees for the CBN.

Buhari last April had announced the appointment of Prof. Ummu Ahmed Jalingo, Prof. Justitia Odinakachukwu Nnabuko, Prof. Mike I. Obadan, Dr. Abdu Abubakar and Adeola Adetunji as Non-Executive Directors of the Board of Directors of CBN.

In October, the president also tapped Mrs. Aishah Ahmad as the next Deputy Governor of the CBN. Ahmad was to replace Dr. Sarah Alade who retired from the Bank earlier this year.

He had also announced the nomination of Professor Adeola Festus Adenikinju, Dr. Aliyu Rafindadi Sanusi, Dr. Robert Chikwendu Asogwa and Dr. Asheikh A. Maidugu as new members of the MPC.

The four nominees were meant to replace four current members of the MPC whose tenures will expire at the end of the year.

However, shortly after their names were sent to the Senate for confirmation, the upper legislative body said it would not consider the nominations in line with its resolution to suspend all executive confirmation requests until the acting chairman of the Economic and Financial Crimes Commission (EFCC) Ibrahim Magu was removed.

Should the Senate make good its promise not to confirm the 10 nominees for the central bank, it will be impossible for the MPC to form a quorum at its next meeting slated for January.

The MPC is a 12-member body whose objective is to maintain price stability and support the economic policies of the federal government by formulating monetary and credit policies.

The MPC, according to the website of the CBN, shall comprise the governor of the Bank who shall be the chairman; the four deputy governors of the Bank; two members of the board of directors of the Bank; three members appointed by the president; and two members appointed by the governor.

But a CBN official said Tuesday that with the possibility of eight members absent at the next meeting of the MPC in January, it would be impossible to form a quorum.

“As you know, four external members of the committee will be stepping down at the end of the year and already we are one deputy governor short. On top of this, we have no board of directors.

“So, with the five non-executive directors who were nominated still waiting for Senate confirmation, the deputy governor-designate and the MPC nominees who have still not been confirmed, we don’t know how a quorum will be formed.

“This would be dangerous for the economy and the markets, as several investors and analysts take positions on the basis of the MPC meetings every two months,” he explained.

Meanwhile, on the retention of the policy rate and other ratios, the CBN Governor, Mr. Godwin Emefiele, who briefed journalists Tuesday on the outcome of the two-day meeting in Abuja, said the MPC took into consideration several factors in arriving at its decisions.

He said: “In arriving at its decision, the committee appraised potential policy options in terms of the balance of risks. The committee also took note of the gains made so far as a result of its earlier decisions, including the stability in the foreign exchange market and the moderate reduction in inflation and thus extensively deliberated the options regarding whether to hold, tighten or ease the policy stance.

“While tightening would strengthen the impact of monetary policy on inflation with complementary effects on capital inflows and exchange rate stability, it nevertheless could also potentially dampen the positive outlook for growth and financial stability.

“On the other hand, whereas loosening would strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing, it could aggravate upward trend in consumer prices and generate exchange rate pressures.

“The committee also feels that loosening would worsen the current account balance through increased importation. On the argument to hold, the committee believes that key variables have continued to evolve in line with the current stance of macroeconomic policy and should be allowed to fully manifest.

“Members noted that the developments in output and inflation in particular required effective close monitoring in order to gain clarity on the medium term optimal path of monetary policy.”

Emefiele stated that in consideration of the foregoing, the committee decided by a vote of eight to one to retain the MPR at 14.0 per cent alongside all other policy parameters, adding that one member voted to reduce the MPR by 100 basis points.

Emefiele further noted that forecast for key macroeconomic variables indicated a positive outlook for the economy up to the first quarter of 2018, adding that this was predicated on continued implementation of the 2017 budget into early 2018, anticipated improvements in government revenue from the implementation of the Voluntary Asset and Income Declaration Scheme (VAIDS) as well as favourable crude oil prices.

The development of finance initiatives by the CBN in the real sector, particularly in agriculture, he said, were expected to continue to yield positive results in terms of output expansion and job creation.

“Focusing on the downside risks to the outlook, the committee noted the low fiscal buffers and weak aggregate domestic demand. On the external front, widening global imbalances, and rising geo-political tensions were some of the crucial risks identified,” he added.

According to him, the MPC noted with satisfaction the second consecutive quarterly growth in real GDP following five quarters of contraction.

“In addition, members welcomed the relative stability in the exchange rate, particularly the narrowing premium and the very slow deceleration in consumer price inflation, largely attributable to base effects.

“Overall, the economy has begun to show strong signs of recovery as public investment has picked up with increased housing construction at the federal and state levels, as well as shipping activities at the ports.

“The committee was, however, of the view that policy makers must not relent in their aggressive policy initiatives aimed at continuing the positive growth trajectory.

“The committee was also concerned about potential adverse external developments and the cautious approach to lending and financial intermediation by domestic deposit money banks.

“The committee similarly evaluated other concerns in the domestic economy and the opportunities for strengthening output recovery, noting that some highly critical sub-sectors were yet to resume growth.
“The committee noted the significant contribution of food prices to headline inflation and observed that the benefit of base effect on overall headline inflation had substantially dwindled.

“Members, however, expressed confidence that the tight stance of monetary policy and the stability in the exchange rate of the naira should continue to positively weigh in on price developments.
“The committee reaffirmed its commitment to maintaining price stability, which is crucial to sustainable economic growth and development,” he stated.

The committee also welcomed the review of the Economic Recovery and Growth Plan (ERGP), in an effort to realise the objectives of the plan, but called for the quick passage of the 2018 Appropriation Bill by the National Assembly, so as to keep fiscal policy on track and deliver the urgently needed reliefs in terms of employment and growth of the economy.

On financial stability, the committee noted the concentration of non-performing loans in a few sectors but observed that the overall condition and outlook for the banking system was stable, as deposit money banks’ balance sheets remained strong.

“This assessment is strengthened by developments in the national accounts and the expectations that the affected sectors are returning to growth.

“Nonetheless, the committee urged further strengthening of supervisory oversight and deployment of early warning systems in order to promptly identify vulnerabilities and proactively manage emerging risks in the banking system.
“The committee further observed that government was increasing debt, both domestically and externally, thus crowding out the private sector,” the governor said.

On the $3 billion Eurobond recently floated by Nigeria, Emefiele observed that its oversubscription by $11 billion was a sign of the growing investor confidence in the Nigerian economy.

He said the roadshow for the Eurobond took place last Thursday and Friday, adding that the pricing was done on Monday with a very impressive outcome.

The bond was oversubscribed to the tune of about $11 billion. However, he said only $3billion could be accessed.
On the question of mounting domestic and foreign debts, the CBN governor said there was nothing wrong in borrowing.
“But I think what is important is how we deploy the money or most of the funds being borrowed. But I am happy that the specific reasons for these borrowings are targeted at infrastructure development.

“I am sure you all know that most of the borrowing right now is targeted to infrastructure – road development, construction, rail, airports and various other infrastructure development projects that will spur economic activities in the country and ultimately continue to accelerate the growth trajectory of the country,” he said.

Concern over 9mobile Deal Allayed

Emefiele also allayed concerns over the attempt by 13 Nigerian lenders to close the deal on the sale of 9mobile, Nigeria’s fourth largest network operator, to new investors in a bid to recover the $1.2 billion the telecoms firm owes them.

Emefiele, who was responding to questions on the purported withdrawal of Barclays Africa as financial adviser appointed by the 13 banks for the 9mobile transaction, said there was no cause for concern. The sale of the telecoms firm ran into troubled waters recently after the CBN and the Nigeria Communications Commission (NCC) queried Barclays over issues bordering on transparency of the process.

The CBN and NCC had expressed concern that the evaluation process that led to the prequalification of 10 bidders for 9mobile to advance to the final stage of the exercise out of the 16 that had originally submitted expressions of interest last October, was not transparent, with sources accusing Barclays of colluding with one or two of the bidders to arrive at a predetermined conclusion of the tender process..

However, Emefiele while not discountenancing the reported withdrawal of Barclays, stated that no official communication had been received from the financial adviser appointed by the banks.
He also announced that the MPC, at the end of its meeting, decided to retain the Monetary Policy Rate (MPR) at 14 per cent.

The MPC also retained the Cash Reserve Ratio (CRR) at 22.5 per cent, the Liquidity Ratio (LR) at 30 per cent and asymmetric corridor around the MPR at +200 and -500 basis points.

According to him, Barclays was appointed via a letter, adding that if it decides to pull out, it was expected to communicate its position through the same process.

“Somebody hinted me that a news report said that Barclays Bank has withdrawn, but I will say that Barclays was hired with a letter, so if they decide to withdraw, they will do so by way of a letter.

“But as I speak with you, there is no letter in that regard… We are only trying to let you know the process; they were appointed by way of a letter and they will also do so if they want to withdraw by way of a letter.

“I did not say that the newspaper told a lie, but the process is still on course. The banks and the regulators and other important stakeholders – Huawei, Nokia and all others are holding important meetings to see to an amicable and harmonious transfer of ownership from the existing owners or the former owners to the new owners by December 31, 2017.

“So, there’s no cause for alarm, no cause for worry, no cause for subscribers to think there is a problem with 9mobile. I repeat, everything is on course,” he said.
He stressed that all the stakeholders were working assiduously to ensure the transfer of ownership to new investors before December 31, 2017.

Going down memory lane, Emefiele recalled that before the last MPC meeting, the issue of 9mobile was raised because the regulators – NCC and CBN – saw 9mobile as a systemically important telecommunications network in Nigeria.
“CBN and NCC decided to intervene to see to it that the 20 million subscribers did not just start running up and down without finding a place for cover.

“So, the best thing we did was to stabilise the company and saw to it that banks and other important creditors did not go into a journey of dismembering the company, as this may lead to a loss of confidence in the telecommunications and banking sectors.

“Accordingly, NCC and CBN intervened to see to it that there was stability and also ensured that the transfer between the old and the new ownership is done uder a smooth transition. That process has continued.

“It is just like a normal process. But there would sometimes be cases where things are not done the way you expect them.

“So, what the NCC and CBN had come in to do was to correct some of the anomalies that we found in the sale process and I am optimistic that the sale process is still on track.

“There is a determination that that sale must take place before December 31 and we remain focused on it,” he said.

Analysts React

Speaking on the rate retention by the MPC Tuesday, Ecobank Nigeria’s analyst, Kunle Ezun, welcomed the decision of the MPC.
According to Ezun, despite the marginal GDP growth recorded in the third quarter and the slowdown in inflation, the MPC did the right thing by maintaining all its monetary policy tools unchanged.

“The growth we have seen still needs reinforcement from the fiscal side. Looking at how much has been spent on capital expenditure so far, they need to do more to drive the economy.

“The central bank is also concerned about returns on investments because it still has its eyes on portfolio flows. For the central bank to maximise the benefits of the investors’ and exporters’ window, it must ensure that the government securities remain attractive.

“Let me quickly add that we are going into 2018 and half of the 2017 budget may be carried over into 2018 and this might increase money supply which might be a downside risk in achieving single-digit inflation rate.
“Also, 2018 would commence the election cycle and so there might be an increase in spending,” he explained in a telephone chat.

Also, the chief executive, Cowry Assets Management Limited, Mr. Johnson Chukwu, noted that inasmuch as he did not expect the MPC to adjust the interest rate at the last meeting of the year, the committee should ensure that it reviews its monetary policy stance in the first quarter of next year.

“Government’s efforts to reflate the economy can only be appreciated if the non-oil sector begins to appreciate. Today, we have low purchasing power.

“Today, even the sectors that resisted the economic crisis are also declining. So, if nothing is done to restore liquidity, which the MPC needs to do by reducing either the MPR or CRR, then we are going to have a very volatile growth,” Chukwu added.