September 16, 2021/United Capital Research

The Monetary Policy Committee (MPC) is scheduled to hold its fifth meeting of the year on 16th and 17th September 2021, as against the 20th and 21st earlier scheduled. The committee is expected to discuss, among other topics, developments in the global and domestic economies since its last sitting, and to decide the next monetary policy action suitable to achieve the committee’s objectives as the economy continues its path to full recovery.

Going into this meeting, we expect a myriad of factors will guide the committee’s decision. Firstly, we expect the committee to consider sustained positive soundbites on global vaccination progress which gives hope for a further boost in oil production. The Organisation of Petroleum Exporting Countries (OPEC+) had recently decided to stick with its plan to boost production by 400,000bps this month across all member-states. In addition, according to NBS data, the Nigerian economy grew by 5.0% y/y in Q2-2021, further indicating our path to full recovery. Also, inflation figures for August showed sustained disinflation for the fifth consecutive month as the headline inflation moderated to 17.01% y/y. Other parameters include financial system liquidity, increasing average yield at NTB market, the yield environment and persistent pressure on FX particularly at the parallel market.

Putting all the factors above into consideration, we believe the MPC will be reluctant to ease monetary policy as it could trigger inflationary pressures and also encourage FX speculation in the market. On the other side of the spectrum, we believe the MPC will be unwilling to take a hawkish position on monetary policy as it could stall the recovery process as well as raise the cost of liquidity mop-ups and the government’s borrowing cost. Thus, we expect the MPC to hold all monetary policy variables, while they retain a bias for sustaining the use of unorthodox measures to achieve their objectives. However, we will not be surprised to see a policy backflip regarding distribution to BDCs or an increase in allocation to banks, following the spiraling exchange rate losses in the parallel market for the Naira.

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