The Monetary Policy Committee(MPC) of the Central Bank of Nigeria (CBN) will tomorrow, hold its maiden meeting this year at Abuja. Analysts are predicting that members would vote for retention of policy rates.

Most analysts believe the best way for CBN not to worsen the rising inflation, already at 18.55 percent; is to retain the Monetary Policy Rate (MPR).

The MPR was retained at 14 percent by the MPC, at its meeting in November last year. Its decision was based on the need to mitigate the fragile macroeconomic conditions; and strong headwinds confronting the economy. In addition, the MPC also maintained banks’ Cash Reserve Ration (CRR) at 22.5 percent; and Liquidity Ratio (LR) at 30 percent. The Asymmetric Window was retained at +200 and -500 basis point around the MPR.

The Chief Economist and Managing Director, Global Research, Africa, Standard Chartered Bank, Razia Khan, while presenting the bank’s position, noted that “The absence of any further policy measures on FX liberalisation suggests that the CBN will be quite comfortable keeping interest rates on hold at next week’s MPC meeting.”

“Although inflation has been pressured higher, further tightening would be more plausible if there was some expectation that it might trigger a positive response from offshore portfolio investors, and bring about greater FX inflows. These plans look to have been put on the backburner for the moment,” Khan added.

Asking, “Could the CBN cut interest rates?”, Khan said, “We think not, despite weak growth.”

According to her, “Inflation in y/y terms is likely to remain elevated for a while still. There is also some disquiet about the recent spike in money supply, and how much of an inflation threat it represents. The CBN may well have to wait for evidence of a pronounced base effect driving y/y inflation down, before it can think about easing policy.”

The Chief Executive Officer, The CFG Advisory, Adetilewa Adebajo, also shared his views on the economy; stating that the main challenge for the MPC this New Year is “taming the inflation monster.”

“At 18.6 per cent inflation is at a 10-year high. It is also likely that 2016 Q4 GDP growth will close around -2 per cent in negative territory. Since there is a strong historical correlation in Nigeria between positive GDP growth and lower rates of inflation, the MPC will have to adapt inflation reduction policies to expect positive GDP growth in 2017.”

Adebajo contended that, “The prospects of increasing interest rates to tame inflation might not go down well with the Real Sector, but the impending increase in fuel pump prices and the related impact on spiking inflation will present a dilemma for the MPC. While a pre-emptive rise in rates might be strongly considered, it is likely that the MPC will hold rates and maintain status quo.”

Besides, the economist noted that, “The markets will also look for comments from the MPC, in an effort to restore confidence and harmonize the FX markets.”

MONETARY POLICY COMMITTEE

The Monetary Policy Committee (MPC) derives its legitimacy from the Central Bank of Nigeria Act (2007). Its objective is to facilitate the attainment of price stability and to support the economic policy of the Federal Government. The MPC has the responsibility within CBN for formulating monetary and credit policy.

It membership consists of:

The Governor of the CBN who is the Chairman
The four Deputy Governors of the CBN
Two members of the Board of Directors of the CBN
Three members appointed by the President
Two members appointed by the Governor
It meets quarterly, except in the event of an emergency

They just have to do what would be good for the country, not just trial and error every time.