282 MPC Policy Meeting lukewarm as CBN takes time to monitor global developments


Thursday, November 25, 2021 / 1:45 p.m. / AbdulQudus Isiaka, Proshare Research / Header image credit: CBN

The CBN MPC is expected to have decided to maintain all political parameters after its two-day meeting between November 22-23, 2021. Analysts correctly predicted the outcome as the inflation rate continued to decline, more recently falling to 15.99% in October. Meanwhile, recent third-quarter growth figures released by the National Bureau of Statistics last week suggest real GDP growth of 4.03%. Even though growth has been mainly supported by expansionary fiscal policy, the MPC believes its centrist approach has prevented a contraction in output.

As an alternative to conventional monetary policy instruments, the regulator continued to manage inflation and excess liquidity with heterodox policy instruments. Emefiele noted that in deciding to keep rates constant, the committee would have an eight-week respite to assess the impact of the development of global monetary policy measures on the Nigerian economy.

Graph 1: Monetary policy rate (%) (2013-2021)


Source: CBN, NBS, Proshare research

Breaking into the global economy: US, UK, Ghana, South Africa

The chairman of the committee and governor of the CBN noted that the US standardization and quantitative reduction policy would have implications for emerging economies. The FOMC decided earlier this month to begin cutting the accelerated rate of its $ 120 billion monthly bond purchase program given an earlier-than-expected rate hike. Since January, the US inflation rate has continued to soar, reaching 6.2%, the highest for 31 years in October. In the UK, gasoline and labor shortages pushed up prices, pushing inflation to 4.2% in October, a decade high. Some members of the Bank of England’s MPC have called for an increase in the base rate to contain inflation. At the same time, for the sake of managing inflation, the members of the BoE committee voted against the extension of its bond purchase program. Analysts believe that even if the UK and other advanced economies signal US policy, the FOMC will not raise rates until it completes the phase-down, which is the preferred alternative.

In sub-Saharan Africa, Ghana decided to raise the lending rate to 14.5% for the first time in five years as inflation exceeded the single-digit inflation rate in September by 10.9% and s ‘deteriorated in October to 11%. Ghanaian officials say the decision to raise the rate would help contain rising inflation and reposition the West African economy for portfolio investment. In his case, the South African Reserve Bank (SARB) decided to hike rates by 25bp to 3.75% after the 2021 CPI forecast hit 4.5%. Analysts noted that rising yields in the United States and other advanced economies could reverse capital flows from emerging economies, a situation that could create a two-track growth path for the global economy. However, the Governor of the CBN argued that capital inflows into the Nigerian economy were generally unrelated to the relative size of returns. As such, there is nothing to worry about.

The fear of the overthrow of capital: real or imaginary?

The CBN’s decision to maintain policy parameters despite the impending rate hike elsewhere is based on the belief that the country has still not benefited from the low interest rate regimes that have prevailed in many advanced economies. which prompted investors to seek higher interest rates. interest rate environments in emerging markets. While this may be true in principle and perhaps in the case of South Africa, the same cannot be said for Nigeria. Using quarterly data between 2013 and H1-2021, Proshare Analyst performed multiple regression analysis and found that While portfolio investment reacted negatively to the rise in parallel premiums in the foreign exchange market, no significant causal relationship could be established between imported portfolio investment and MPR or with the yields of three-month US and Nigerian treasury bills. Specifically, portfolio investments fall by 1.56% for each naira of difference between official rates and parallel market rates.

The need for rate uniformity in the foreign exchange market is demonstrated by the decline in portfolio investment (PFI) between the second quarter of 2015 and the third quarter of 2017, when the parallel market premium was increased. (See Figure 2 below).

Graph 2: Relationship between portfolio investment and size of parallel premium

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Source: CBN, NBS, Proshare research

CBN intervention programs; looking for a dashboard

During the information session which followed the meeting, the chairman of the committee noted that the committee had assessed the impact of the various CBN interventions; however, he failed to show how these interventions impact different sectors. An appropriate impact audit should be carried out considering the volume of its interventions overseen by the CBN in the manufacturing / industries, agriculture, energy / infrastructure, health care and micro, small and medium enterprises (MSME) sectors.

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On developments around the FBNH and the banking sector

The Committee also noted improvements in the banking system, as the CBN recorded loan-to-deposit ratio (LDR) gains while responding to journalists’ questions about the systematic suspension extended to bank and bank customers, which expires. in February 2022. Governor Emefiele noted with satisfaction the improvement in the banking sector, in particular the appreciation of the share price of the FBNH, an institution he described as systematically important. On the debate around the acquisition of a majority stake in Holdco by Femi Otedola and Oye Odukale at the FBNH, the governor of the CBN noted that the SEC was the regulatory authority in a position to guide on the matter but Judging by the size of the bank, a single shareholder could not claim to own the bank.

Related links

1. July 2021 MPC meeting: CBN holds all policy parameters and stops foreign exchange sales to BDCsJul 27, 2021

2. CBN suspends currency sales to BDCs until further notice March 26, 2020

3. Ban on the sale of CBN FX to BDCs: financial and market players reactJanuary 12, 2016


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Related news on monetary policy

1. CBN press release n ° 137 of the MPC meeting – July 26-27, 2021

2. MPC likely to hold rates

3. The rationale for the lack of change in the position of the MPC

4. Personal statement from MPC: If it ain’t broke …

5. Personal statements from MPC members at the 136th MPC meeting on May 24-25, 2021

6. Double-digit growth of the PSCE in May 2021

7. System liquidity in deficit on persistent CRR debits

8. The intricacies of cash management in Nigeria

9. Steady growth in extension of credit to the private sector in April 2021

ten. Post-MPC May 2021: status quo justified but economy still hampered

11. May 2021 meeting: another decision by the MPC to wait and see

12. CBN Communiqué N ° 136 of the MPC Meeting – May 24-25, 2021

Proshare Nigeria Pvt.  Ltd.
Proshare Nigeria Pvt.  Ltd.
Proshare Nigeria Pvt.  Ltd.
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