Inflation, forex crisis top agenda as MPC meets today

The worsening economic indicators ranging from rising unemployment records, falling manufacturing index, low consumption, out-of-target inflation level and lingering foreign exchange crisis, among others, will put to test the ability of the Monetary Policy Committee (MPC) to cause change in the economy.

Besides, while these indicators can be said to be challenge overtime, the latest report of the Purchasing Managers’ Index (PMI), which showed a contraction of 10 per cent year-on-year and rising inflation that has entered double digit, would require immediate and effective policy direction.

The MPC meeting, which begins today, would be the second in the year, convened to review developments in the domestic and global fronts, as well as take key policy decisions.

The meeting is also coming against the backdrop of renewed optimism in the global economy, low domestic economic performance and increasing challenges on real economic growth and consumer purchasing power.

Since the last policy meeting in January, new reports showed that economic activities, measured by the Gross Domestic Product (GDP), slowed to a record low of 2.11 per cent in the fourth quarter of 2015 – the lowest growth rate since 1999.

Amid low output growth, headline inflation rate rose to 11.4 per cent in February, the first double-digit rate in almost 42 months, which is beyond Central Bank of Nigeria’s (CBN) inflation target of six per cent – nine per cent and attributed to rising food prices, cost of imported goods, as well as replacement costs.

President and Chief Executive Officer of Time Economics Limited, Dr. Ogho Okiti, said the relatively-predictable two previous monetary policy meetings are not like this one where “MPC is caught between the devil in slow growth and the deep blue sea in rising inflation.”

“The MPC has limited tools to spur growth and enhance economic activities. Having also achieved its target in the last three years, the Committee will be careful to ensure that Nigeria do not return to an era of consistent double digit inflation and macroeconomic instability it entails,” he said.

In a note to The Guardian at the weekend, analysts at Afrinvest Securities Limited said the policy-makers have three options to tweak on in an effort to cause change in the economy after the meetings.

The analysts said CBN will either retain all rates and continue to harp on structural reforms and policy co-ordination with the fiscal authorities or adjust the Monetary Policy Rate (MPR) upwards by one per cent to two per cent to compensate investors for lowered real return and attract foreign private capital.

Head of investment Research at Afrinvest, Ayodeji Eboh, said it is likely that the committee would not do anything spectacular by leaving all rates as they have been.

Besides, an economist at the Pan Atlantic University, Dr. Austin Nweze, told The Guardian that the meeting is gradually losing impact, especially as the sought after direction from the fiscal side has not been forthcoming.