Outcome of May 2015 MPC meeting



MY vote on the outcome of the Monetary Policy Meeting (MPC) of May 18/19, 2015 is that a hold on key policy was to be expected.

But I was mindful of the fact that at the meeting preceding this very one, a hold decision was also made. But in as much as the Central Bank exercises instrument autonomy, it must be mindful of gauging the policy thrust of the new administration as the expectation and what is certainly best practice is that for optimal results and in the best interest of the economy, Monetary and fiscal/structural policies should be complementary pulling the economy in the same direction.

One was also mindful of some stability which we have gratefully attained in key monetary indices over the period since the previous meeting.

The closure of the Retail Dutch Auction System proved a genius and absolutely prescient as it returned badly needed stability to the foreign exchange market ending the hemorrhaging and worrisome depletion of the foreign exchange account balance while in the process checkmating the propensity to perpetrate round tripping for rent seeking purposes.

As the MPC noted in its Communique, the country actually recorded marginal gains in the positive direction of marginal appreciation in the exchange rates and also even marginal accretion on the reserve account.

Also just before the meeting, the Bureau of Statistics released inflation static for the month of April which indicated a marginal increase in the rate of inflation. Based on such informed critical analysis one therefore voted for a hold decision following the MPC meeting.

It was therefore a pleasant surprise to note that the Committee decided to harmonize the rates of reserves between the Private and Public sector components of deposits citing the possibility of moral hazards amongst other considerations.

It has been argued that increasing Private Sector deposits by a massive 11 per cent while reducing the public sector equivalent by 34 per cent might not achieve the intended goal of relaxation in the prevalent tight monetary policy stance.

The logic is that Public Sector deposits have been depleted following the challenge arising from the softness of the oil market which has resulted in massive shortfall on accruals to the Revenue Account resulting in an unprecedented situation whereby about 21 states in the federation are currently reported as not being able to meet the obligations of the payment of monthly salaries to their workers across the Federation.

But my considered take on that observation is that compatriots must learn to trust those that the country has charged with discharging critical responsibility by always giving them the benefit of doubt in such matters.

If the Committee had noted that it took that decision in furtherance of its intentions to ease the monetary stance, we must accept such affirmation because we can go ahead and speculate but the expectation is that the Committee has the full advantage of a panoramic view of the landscape based on the data it is charged to collect and regularly analyse.

The other important and critical consideration which though might not have been stated is that the banks are suffering the full effect of the headwinds from the monetary authorities as it recently grappled with the challenge of stemming the slide in the value of the Naira.

A perceptive monitoring of the popular press would attest to the fact that the results recently released by banks have not been rosy and upbeat.

It will be unfair to cite examples here but anyone who is so inclined could quickly consult the recent editions of some financial publications particular Business World Newspaper where I am listed as a member of the Board of Analyst of the publication and therefore receive my entitlement of complimentary copies of the publication to attest to this observation.

What is additionally worrisome is the report by Allan Grey Group; Africa’s largest privately owned investment Management Company to the effect that a number of Nigerian banks might go broke next year considering a combination of the full effects of the fall in oil prices, likely spike in the bad debt position, political uncertainly and the Boko Haram insurgency.

The Central Bank is fully in charge of the situation as its recent moves would definitely confirm and it is therefore inconceivable that any of the banks will be confronted with any challenges which could not be contained and mitigated.

But this is food for thought which should dispel from all concerned stakeholders a complacent mindset in this regard. And therefore we should celebrate any moves by the regulatory authorities that make the banks even more profitable to retain and grow employment opportunities and make their statutory contributions to the treasury by way of the payment of due taxes.

I am mindful of the view held by quite important power centers in the country that the excess liquidity in the system is a creation of the Central Bank in the way and manner it converts and disburses accruals to the Federation Account amongst the various tiers of government. But what the Central Bank does is best practice and such proponents should cite jurisdictions where their particular recommended approach is adopted.

Also the inflation rate in United Kingdom is at the level of -0.1% in April and the inflation rate in Nigeria as per the latest release is above eight per cent; it is therefore illogical to expect that interest rates in the country will fall below inflation rate as that would discourage savings and prevent the financial system from achieving badly needed depth.

There is no doubt that all concerned appreciate the beneficial effect of low interests for real sector activities but this rate would not be achieved overnight.

We must persevere with the right policies, stay the course and hopefully begin to witness a movement in the desired direction of reduction in interest rates across board in Nigeria.

• Dr. Boniface Chizea wrote from Lagos.

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