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PRE-MPC COMMENTARY - Welcoming a new MPC: Will they stick or twist?

The inauguration of the new Monetary Policy Committee (MPC) is hugely welcome given the uncertainty around monetary policy since the start of the year. Despite calls for the committee to hit the ground running and ease monetary policy, we consider it more prudent for the MPC to hold back at this time and instead provide forward guidance and greater clarity on their near to medium-term expectation, in line with global best practice. In our view, easing at this emergency meeting would be hasty, particularly as general Central Bank of Nigeria (CBN) liquidity management is yet to properly signal a shift towards sustained monetary easing. Therefore, our recommended approach would be for the MPC to provide clarity on rate path and the CBN to follow suit through its Open Market Operations (OMO) in the coming weeks. This should pave the way for a stable shift towards looser monetary policy in Nigeria. 

Despite the steep fall in headline inflation (from 15.4% y/y in December 2017 to 14.3% y/y in February 2018), underlying inflationary trends are more sticky. The broader picture warns that we are not out of the inflation woods and we are yet to see a marked change in underlying inflation. February numbers showed stronger signs of moderation – largest drop in core inflation since June 2017 but the medium-term trend cautions against overly aggressive easing. All things considered, the recommended decision at this week’s meeting is a “HOLD” with further clarity to be provided on medium-term monetary policy.