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Monetary Policy Decision - MPC opts to hold, but not because members are new

MPC opts to hold, but not because members are new

The much-awaited first monetary policy committee (MPC) meeting of 2018 ended with the status quo unchanged, as Nigeria’s new monetary policy chiefs came down on the side of consensus expectation to hold all policy levers. The newly constituted committee acknowledged the gains from looser monetary policy in terms of supporting economic growth but cautioned against this in order to maintain price and foreign exchange stability. Moreover, the committee expressed pleasure at the evolution of macroeconomic indicators in the 21 months since the last change in interest rates and stressed the continuing need to allow current levers to work through to the real economy.

Whilst we concur with the MPC’s decision to hold interest rates, we are slightly surprised by the Governor’s silence on the medium-term rate path. The rhetoric of near-term monetary policy was strikingly similar to the previous meeting in November 2017, despite the observed changes in economic growth, inflation, and foreign exchange dynamics since then. In particular, the Governor had previously signaled imminent monetary easing (outside his MPC speeches), a view backed by CBN liquidity activity and fixed income yield movements in the last 6 months. Though it is likely that MPC’s position remains the same, the lack of further clarity is a missed opportunity because the likelihood of higher inflation in the latter part of 2018 (from election spending and possible minimum wage hike), could impose a time constraint on monetary easing. Given this, we are cautious about the possibility of a rate cut in the near term until we are able to parse through the full member statements (when released) to chart a clearer monetary policy path for 2018.