MPC meeting: Inflation rate, dwindling FX reserves, others take center stage
By Kayode Tokede
As the Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN) commences on Monday, analysts have highlighted that inflation rate, dwindling foreign reserves, among others are to take centre stage of discussion.
The National Bureau of Statistics (NBS) had reported 17.33 per cent inflation rate for February, the highest in over four years, while foreign reserves dropped to $34.33billion as at March 17, 2020.
Our correspondent gathered that food inflation rate surged to 21.79per cent in February 2021, which is the highest rate recorded since October 2005.
At the first meeting in January, the CBN governor, Mr. Godwin Emefiele stated that the committee expressed concerns on the persisting uptick in inflationary pressure.
He attributed the upsurge in food inflation to the logistical bottlenecks, spurred by the increasing security challenges in many parts of the country, which disrupted food production and supply to the market.
“Other factors driving the core inflation, include the recent deregulation of the downstream sector of the oil industry, which led to hikes in the price of Premium Motor Spirit (PMS) and the upward adjustment in electricity tariff,” he said.
At the first meeting, Nigerian NewsDirect had reported that the committee maintained status quo on rates and analysts have predicted that the committee at the second meeting that commenced on Monday might not be changed its monetary policy rates.
Speaking with our correspondent, President, Association of Capital Market Academics of Nigeria (ACMAN), Prof. Uche Uwaleke stated the inflationary pressure going to be major issue at the meeting, stressing that the committee must boost economic recovery.
According to him, “I expect the MPC to hold the rates in March. However, inflation rate is rising but economic recovery is still weak at 0.11 per cent in previous quarter.
Also, inflationary pressure is more from cost push factors. 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.”
The Director-General, Lagos Chamber of Commerce & Industry (LCCI), Muda Yusuf stated that the committee would be concerned about inflationary pressure, stressing that the primary mandate of the CBN is price stability.
According to him, “The MPC members have been sacrificing inflation rate to promote the economy growth through its numerous interventions for the past few months.
“Now that inflation is at a very high threshold and economy out of recession, I expected a shift of focus from issues of growth to issues of stabilizing the macro economy environment of which controlling inflation is a major component.
“The CBN at the meeting is likely to come from that direction. They may begin to review of its their monetary policy rates that has been for some time to stimulate economy growth.”
A Senior Lecturer, Lagos Business School, Bongo Adi said the members are to battle on how to curb rising inflation rate.
In his words, “Everything about the present economy as regards the CBN is rising inflation rate. The challenge for the MPC members is not allow a huge gap between interest rate and inflation.
“They will be brainstorming on how to bring them into a alignment and of course find a way to step down the steady hike in inflation. In that case, we have seen oil price has increased a bit but then, we have another problem of the removal of subsidy in order to stem to pressure of social unrest.
“This MPC meeting is going to be tough battle but I don’t expect them to go high on the rates. They might find a way and keep things on hold or tighten some of the key parameters.”
In addition, Professor of political economy and management expert, Patrick Utomi admitted that the nation economy is a tough situation.
According to him, “The actual response of CBN in tough situation should be seeking for contraction in money supply in a move to reduce inflation. Unemployment rate is increasing and we huge challenge despite escaping “recession” which does not really show we are growing.
“CBN will need to stimulate economy activities. In my opinion, we must focus now on accelerating growth and close eye to inflation for the moment. The big problem I have is that all these quantitative easing efforts to accelerating growth fade away and I don’t see what has been stimulated in the economy.
“The feeling is a function of a weak institution which is not allowing flow through to stimulate economy activities. The money comes out of CBN where its ends up, nobody really knows. Maybe into the pocket of politicians as those who needed these funds are not seeing it.
“That is the big problem that needed to be attacked. It is getting very dangerous”
Meanwhile, analysts at Cordros capital projected that the Committee is to review the domestic and external macroeconomic conditions and financial markets developments since its last meeting in January and provide forward guidance on how it intends to balance the competing goals of price and exchange rate stability.
They added that, “Despite the partial re-opening of the land borders in December 2020, domestic inflationary pressures show no signs of respite.
“In our view, the persistent increase is price level has been primarily due to the combined effects of ongoing security challenges in the country, FX liquidity challenges, and poor distributional networks.
“The headline inflation has risen from 15.75 per cent in December 2020 to 17.33 per cent as of February 2021 – the highest in four years. Given the prior year low base effect alongside the persistent increase in food prices, we think the headline inflation is on track to exceed the 18.72 per cent recorded in January 2017, the highest inflation rate since the NBS started the current data series.
“Although a dovish monetary policy contradicts rising inflationary pressures, we expect the Committee to reiterate that a hike in interest rate will oppose its current growth mandate, given the adverse impact on the rising cost of borrowing for households, businesses and the government.”
