MPC decides on key policy issues as Emefiele chairs meeting

As the Monetary Policy Committee (MPC) of Central Bank of Nigeria (CBN) meeting for the first time this year, the main monetary policy issue is expected to dominate the discussion amid uncertainty over the handover of the embattled governor of the apex bank, Godwin Emefiele.

The two-day meeting began on Monday in Abuja and is expected to be chaired by Mr. Emefiele, who recently returned to Nigeria after leaving the country in controversial circumstances.

The top bank governor is currently under fire as concerns over arrests by State Security Service (SSS) officers escalated on their return last week. Mr. Emefiele is being investigated on a number of charges, including corruption and terrorism financing.

Last Monday, there was confusion at the bank’s headquarters in Abuja as Mr. Emefiele resumed his duties a week after leaving the country. While reports claimed that SSS operatives stormed the CBN headquarters and took over the office of the top bank governor, the secret police refuted the claims.

Later in the week, the CBN governor met with President Muhammadu Buhari at the State House in Abuja but refused to speak to journalists about his experience after the meeting.

When the MPC meets on Monday, the apex bank is expected to consider key issues including inflationary pressures, interest rate concerns, and the naira redesign policy, among others.

Inflation

At the last MPC meeting held in Abuja, the CBN raised its benchmark lending rate to 16.5 percent in its continued push to control inflation and reduce pressure on the naira.

Nigeria has struggled to contain the upward trend in inflation in recent years.

Driven by a number of factors including rising energy prices, rising food prices, floods, insecurity, and related concerns, the country’s inflationary pressures not only directly affect consumers, but also increase production costs for producers.

In December, the country’s statistics bureau said Nigeria’s inflation rate fell to 21.34 percent from 21.47 percent in November after 10 straight monthly increases.

In addition, food inflation which is one of the drivers of Headline Inflation fell to 23.75 percent in December from 24.13 percent the previous month.

While the inflation rate is falling, the prices of goods remain high amid weakening consumer purchasing power.

Interest Rate

At the last MPC meeting, Mr. Emefiele said that the previous hike (benchmark rate) is starting to yield results and should continue to tighten.

It is unclear whether the MPC will tighten again or hold rates at the end of the ongoing meeting.

While some experts argue that increasing rates could help curb inflation and stabilize the naira, others say it could hurt economic growth and make borrowing more expensive for businesses and consumers.

In a note sent to clients over the weekend, analysts at Cordros Securities noted that they expect the MPC to assess the domestic and global economic environment in the context of developing key economic and financial indicators since the last policy meeting in November.

“In its view, the MPC may be concerned about domestic economic pressures, given the slow growth recorded in Q3-22, especially as the manufacturing sector posted its first contraction since Q4-20.

In addition, inflationary pressures remain intact, although a slight easing in December will be welcomed among Committee members. Elsewhere, the prospect of global central banks initiating smaller interest rate hikes is likely to influence the MPC’s decision to draw a similar line amid concerns about the domestic economy.

“Thus, we expect the MPC to choose a smaller rate increase in the short term, as the pressure on the local economy and the risk of overtightening come to the policy discussion. Consequently, we expect the Committee to increase the MPR by more than 50bps – 100bps and hold other policy parameters.

Naira Redesign

As concerns over the newly redesigned naira notes continue to dominate public conversation, the MPC is also expected to make certain interventions on the issue.

Since the note was introduced, many Nigerians on social media have expressed reservations about the circulation of the new unit. While many claimed that they had not seen the new naira notes, others complained about the withdrawal of money from depository banks even as the January 31 deadline to reject the old notes was approaching.

Last week, as part of measures to expand circulation, the CBN warned banks to open ATMs with new notes and threatened to sanction erring banks.

READ ALSO: Why CBN maintains monetary policy rates despite recession – Emefiele

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Meanwhile, the Nigerian Governors Forum (NGF) at the weekend set up a six-member committee to engage the Central Bank of Nigeria (CBN) to address anomalies in the country’s monetary management and financial system, particularly in the issuance of new Naira notes. .

The committee, according to a communique signed by the NGF Chairman Aminu Tambuwal of Sokoto State, was chaired by Anambra State Governor, Charles Soludo.

The governors said that while not opposing the objectives of the Naira redesign policy, the apex bank should consider the characteristics of households and countries, especially in terms of financial inclusion and underserved locations.

As the MPC announced on Tuesday, these and many other important issues will be discussed at the meeting.