…….AND IT'S ANOTHER MPC BY CHUKS ANYANWU

The Nigeria Monetary Policy committee will commence its two day meeting today the 21^st of September 2015, to take major monetary policy decisions.  Expectedly, this particular MPC meeting has attracted a lot of attention from analysts and market watchers because of the major economic effects the decisions at this MPC will have on the Nigerian economy and the general emerging markets.

Major Considerations

·         Exchange rate volatility and the case for a rate hike

·         The Chinese Economy and its effect on emerging markets

·         Crude oil  prices

·         TSA and the possible effect it would have on the private sector CRR

·         Consistent uptrend in inflation

·         Sluggish GDP group

…….Our take

·         Exchange rate: as far as this is concerned, the CBN has made it explicitly clear that it will not consider a further devaluation of the Naira and so we do not expect that sentiment to change.  However, the MPC may consider a hike in the bench-mark rate which is currently at 13%.  We do not however think that the CBN will hike rates at this time because for an economy that hopes to jump-start its local capacity to export more, a further rate hike will hurt the growth of local manufacturers and their ability to access the much needed financing.

•         Chinese Economy: clearly, the strain in the Chinese economy has cast a dark cloud on emerging economies which has already been battered by the steep decline in crude oil prices as well as other commodities prices.  The major consideration for the MPC as far as this goes is capital flight from emerging economies.
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•   Treasury Single Account (TSA):  with the implementation of the TSA by the Federal government effectively eliminating access to public sector deposit by the banks, the clamor for the further reduction of the CRR for private sector has heightened.  Our opinion is that the MPC will retain the private sector CRR at current levels (31%).  Our opinion is strengthened by the fact that a further reduction will spike inflationary traits that has increased on a consistent basis over the past three months.   With the total money in circulation still about N1.5 trillion, the current currency control policies of the CBN has triggered the injection of previously locked away liquidity into circulation and we think that rather than worsen this position and triggering a spike in inflation, banks should be more aggressive in harnessing more of these funds into its system by creative product offerings and other aggressive deposit drives

Conclusion

We acknowledge that these are critical times both from Global and domestic economic perspectives. However, we expect most of the major decisions to remain unchanged.  We think that the CBN’s stance on not devaluing the local currency further is the only major decision to be taken and the passive implication of that stance will clearly impose an unchanged policy decision on the MPC.