March 20, 2017/Cordros Research
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The Central Bank of Nigeria’s (CBN) Monetary Policy Committee’s (MPC) 255th meeting (second this year) is scheduled to hold this week — 20th – 21st March, 2017. Indeed, expectation around the meeting is modest – particularly among local market and economic agents – owing to the fact that the Committee is highly unlikely to announce any major policy changes.
This is also in line with Bloomberg’s analyst poll showing a consensus for a rate hold. While we equally expect the Committee to maintain status quo, we look forward, more specifically, to its assessment of economic changes following its January meeting – particularly issues around output growth and key prices (consumer prices and exchange rate).
As widely expected, the MPC played the wait-and-see card in January, reassessing the headwinds which confronted the Nigerian economy in 2016 and potentials for recovery in 2017. Much more important to us was the overall tone of the Committee which revealed that members were conscious of the prevailing market sentiments in favour of a rate cut. Nonetheless, the MPC’s sense was that it remains committed to addressing the delicate balance between price stability and growth, which requires more than popular simplistic approaches and quick fixes. Clearly, certain conditions will have to hold for the Committee to consider a rate cut.
Diverging Monetary Policy Paths across Regions
On the international scene, we guided in our Nigerian 2017 outlook, “In Search of the Missing Link”, that one of the major considerations of the MPC this year would be the normalization of interest rates in the U.S. Indeed, the Federal Reserve, on Wednesday, raised interest rates (for the second time in three months) by 25bps to a range of 0.75% to 1.00% while signaling the possibility of additional two cuts during the year.
However, the MPC appears less driven by the movement of interest rates in the U.S. given the fact that central bankers elsewhere in advanced economies remain committed to monetary easing. For insight, the Bank of Japan maintained status quo in its last meeting, the European Central Bank (ECB) held interest rates at historic lows and left mass bond-buying plans unchanged, while the Bank of England (BoE), for the seventh consecutive month, held the line on key lending rate at a record low with no changes to its GBP435 billion (USD533 billion) quantitative easing program.