Analysts see no strain on the economy as MPC looks impossible to convene

by | January 21, 2018 6:05 pm

There is rising confidence that the Nigerian economy will likely not come under strain as it now appears obvious that the January meeting of the Monetary Policy Committee (MPC) will not hold.

The two-day MPC meeting where critical decisions on the economy are taken is supposed to begin tomorrow, Monday till Tuesday, going by previous trends, but will no longer convene because five out of the twelve member committee who retired last year have not been replaced, almost four months after President Buhari sent the nominees to the Senate for confirmation.

The MPC meets once in every two months, bringing to six the number of times the Committee convenes in a year. The last meeting was held in November last year.

“The CBN Act envisages the possibility of the MPC not meeting, up to twice a year and also does not envisage that the possibility of not meeting those times could create a crisis,” said Ayo Bamidele, an Abuja based business lawyer. “The provision in the Act is that the MPC should meet at least four times in a year, so that window of missing up to two sittings is there.”

“That gives the CBN a leeway to manage the situation and information if for any reason the MPC does not hold.”

The MPC comprises a chairman, who is the governor of the Central Bank of Nigeria (CBN), four Deputy Governors of the CBN, and seven other members- five of the members retired last year.

President Buhari, in October 2017 presented Aishah Ahmad to the Senate for confirmation as CBN Deputy Governor, replacing Suleiman Barau who retired in December as the Apex bank’s DG, Corporate Services.

The president also sought the senate’s confirmation of appointment of Adeola Adenikinju; Aliyu Sanusi; Robert Asogwa and Asheikh Maidugu to replace four members of the Monetary Policy Committee of the CBN whose tenure equally expired last year.

But the continued squabbles between the presidency and national Assembly has led to the senate insisting that it will no longer confirm most nominations from the presidency and is now posing a serious challenge on the Monetary Policy Committee which cannot for a quorum without those key appointments.

The concerns that even if the MPC holds, the outcomes may not be far-reaching and widely trusted and acceptable by relevant stakeholders to make decisions.

Analysts, however, raise optimism that the economy can still run perfectly for a while before the issues are hopefully sorted and the MPC can reconvene.

Johnson Chukwu, Managing Director of Cowry Asset Management Limited says he does not think investors’’ behavior will change suddenly because the MPC could not hold just in January. He However warns that the issue must be quickly resolved otherwise doubts will be raised on the capacity of those concerned to be able to manage Africa’s largest economy.

“My concern is that the cancellation of the meeting should not be prolonged,” Chukwu said.

“We have lived with steady macroeconomic variables in the last one year and monetary indicators have been stable and strong, so I do not see an immediate impact on the economy, but it should not persist, if it does, there is going to be question mark on our ability to manage the economy and ofcourse lead to negative turn in the monetary aggregates which may be difficult to correct,” he further stressed.

Even if the MPC was to hold, analysts do not see the possibility of a change in monetary policy direction for now, as they maintain that the Committee would likely have retained its tightening position, which it has held since September 2016 because the CBN appears to be moving in the right direction.

There has been, though, argument that the CBN should begin monetary policy tapering in order to strengthen growth prospects. Some analysts however argue that the gains accruing from lower interest rate does not often impact the economy positively in terms of credit expansion to the real economy, but usually finds its way into the foreign exchange market and cause distortions.

“The mentality of the MPC has been that if it hasn’t broken, why fix it? And I think I share same mentality,” said Stephanie Obiora, an economic analyst who spoke to BusinessDay in Abuja.

“From an economic point of view, “crisis is not looming if MPC fails to hold,”

“We do not see any crisis in the offing,” she adds.

Obiora argues that the fundamentals of the Nigerian economy, today are stable and promising, justifying that there is no foreseen crisis.

According to her “Firstly, the country’s exchange rate has remained stable for some period now after a tumultuous period early last year.

“The foreign exchange inflows are currently so high above their highest levels in the last decade. The reserves accretion is high and has risen to over $40bn, the highest in over a decade.

“So the country now has a market that runs itself, where the Central Bank is only a participant and not a market maker, and is not spending our reserves to fund the needs of the market.

“On the part of the exchange rate, it has never been so stable at least in the past six months.

“On the part of the interbank interest rate, there is sufficient liquidity in the system.

On the issue of monetary management, she explained that the fact that the CBN just last week, resumed Open market operations (OMO) sale to mop up excess liquidity in the system shows they are equal to its game and “I believe they will be sending out appropriate message to the market as we progress and need arises.”

She further explained that on the part of inflation, prices have been trending downwards since beginning of 2017, with headline inflation moderating to 15.37 percent as at December and both core and food inflation trending downwards even against expectations that prices were going to move up following the fuel crisis last December.

“That shows you the efficacy of monetary policy when you have maintained stability over time,” she added.

In July, 2017, the Senate suspended confirmation of executive nominees not expressly stated in the 1999 Constitution (as amended) until the Presidency relieved Ibrahim Magu of his duties as Acting Chairman of the Economic and Financial Crimes Commission (EFCC).

This, it said, was in line with his rejection by the Senate which screened and found him unsuitable for the office on two occasions.

Also, senators insisted that the Presidency must withdraw its earlier remarks that the upper legislative chamber lacked the powers to confirm executive nominees.

BusinessDay gathered that aside the President’s request on confirmation of nominees for the Deputy Governor and four members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), over 40 nominees are pending at the Senate.

They include heads and board members of the Pension Commission (PenCom), Independent Corrupt Practices and other related offences Commission (ICPC), National Lottery Regulatory Commission (NLRC), Federal Roads Maintenance Agency (FERMA) among others.

BusinessDay, however reliably gathered that the Presidency is advancing talks with the National Assembly to resolve the matter.