MPC : CBN Hold Decision
MPC : CBN Hold Decision
By Boniface Chizea
The Governor of the Central Bank just concluded the customary press briefing marking the conclusion of the November 22/23 Monetary Policy meeting. This meeting for shouting out loud is the last meeting for the calendar year 2021.
Ten members of the Committee were present same as for the September meeting out of a complement membership of twelve. We were also informed that the decision taken was unanimous.
As predicted by most informed commentators a hold decision was returned. Therefore the parameters were retained as follows; Monetary Policy Rate; the signal rate at which the CBN will extend accommodation to financial institutions was retained at 11.5% with asymmetry corridor of +1/-7 bases points.
The corridor means that the effective rate the Central Bank will lend is 12.5% while if an institution lends to CBN, the rate of interest will be 4.5%. This rate was first reduced from 12.5% to 11.5% in September 22, 2020 and has remained at that level since then. The other strictly Prudential rates of Liquidity Ratio and Cash Reserve ratios were retained respectively at 27.5% and 30.0%.
So, the logical question to ask at this juncture is why the rates were retained. The straight forward reply is that you don’t mend it if it was not broken. All the key indices of the economy for now are all in the right direction even if reliefs are yet to be felt at the level of the individual.
The GDP this year has been on the uptick; increasing. At the end of the first Quarter(Q1) of 2021, an insignificant growth of 0.51% was recorded. By Q2 a controversial growth of 6.1% was returned and most compatriots were incredulous. But this was largely due to base effect as it was relative to mid year 2020; the heat of the pandemic and consequent Lockdown when the economy contracted by -6.1%. The growth rates for Q3 has been reported to be 4.03%. But most have complained that these growth rates have not been felt at the level of the individual.
Population growth rate in Nigeria approximates 3% yearly. The economy would have to grow an average of 7-10% for individuals to begin to feel its impact. But what is reassuring is that the economy is growing even if we all know that it could grow faster for expected results to be felt.
The latest data on inflation for October is 15.99%. This is the seventh straight month decelerating rates of inflation have been recorded. It remains a fact that today there are hardly any areas of our national life that have not witnessed ravaging price increases. And with the inflation rate at 15.99%, there is logically not much scope for reducing the MPR if we have an interest to deepen the financial sector.
No informed treasurer will accept deposit rates below the rate of inflation. And really for monetary authorities across the globe, this is the only parameter they have to tinker with! But again the reducing rate of inflation is what is widely desired. So, here again we are in the right direction. Supply bottle necks with agricultural produce has meant that Core inflation (excluding agriculture) has fared even better.
The Brent price of fuel at a limit of 86 dollars per barrel during the period rising from the rate of 50.9 USD over which it stabilized for a fairly long period is reassuring and in any case outside our purview. The external reserves crossed the psychological 40 billion dollar mark on October 18, 2021; the highest level in a 23 month period.
There were expectations that the MPC could have appraised developments in the foreign exchange market particularly against the background of IMF as part of its Article 4 report calling for market clearing unified rate of exchange. There were also expectations that eNaira, Cryptocurrency and the recent controversy regarding the identity of the majority shareholder at the First Bank Holding Company would be addressed. My take is that the early we can reduce the stranglehold of exchange rate on the economy, the better for all concerned. Hold decision was expected and hold decision was returned and therefore everyone should be at peace.
Dr. Boniface Chizea, an economist and consultant wrote from Lagos
