This week – precisely Monday and Tuesday – Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will meet in Abuja to review developments in the domestic and external economic scene and to adopt the requisite monetary policies that will help keep the national economy on the right track. To be sure, this is one MPC meeting whose outcome is predictable. Therefore, I see it as a mere ritual. In fact, the thinking of the Economic Intelligence Unit (EIU) of Access Bank Plc with respect to the MPC meeting this week and its outcome corroborates my take.
In its pre-MPC communiqué, Access Bank’s EIU strongly believes that the MPC will not change any of the monetary rates at the end of its meeting this Tuesday. In other words, Monetary Policy Rate (MPR) will be left at 13 per cent, and also leaving the +/-200 basis points corridor unchanged; Cash Reserve Requirement (CRR) for private and public sector funds will be left at 20 per cent and 75 per cent, respectively; Liquidity Ratio will be retained at 30 per cent; and net open position limit (NOPL) on foreign exchange trading position of banks will be left at 0.5 per cent.
Of course, retaining the rates is about the most sensible thing for the MPC to do because altering any of the rates now is most unlikely to make any impact on the economy. Moreover, as a matter of fact, nothing dramatic has happened either in the external economic scene or on the domestic front to warrant moving any of the variables up or down. Crude oil price which to a large extent determines the fate of the national economy is still on a yo-yo dance. Already, the CBN has shut down the retail Dutch Auction System (rDAS) in response to what it termed speculative demand for foreign exchange in the market. Since then, the interbank exchange rate has remained shy of N200/$. In the parallel market, the Naira is battling hard not to go as low as N230/$. The CBN seems to be comfortable with these developments because it is no longer being compelled to draw from the country’s external reserves to defend the Naira. With this, the members of the MPC have been spared the headache of finding a solution to the problem of depreciating exchange rate of the Naira. However, the nation’s economic condition remains precarious, and it behoves on the management of the CBN and the MPC to pull the national economy out of the murky waters that it is stuck in.
Sincerely, I sympathise with Mr. Godwin Emefiele and members of the MPC. They must be going through hell now as they try to formulate the appropriate monetary policies to stem the depreciation of the Naira exchange rate and to tame inflation which has, for good reasons, been moving northwards since this year. The slump in crude oil price and the 2015 general election are obviously the twin devils holding the national economy hostage. The situation is so bad that even if a team of Nobel Laureates in Economics embark on a rescue mission for the national economy they will sweat down to their pants. If the problem is just the slump in crude oil price, I think it will be relatively easy to grapple with. In fact, by now, we would have been seeing the silver lining in the sky given the barrage of monetary and fiscal policies that have been adopted and applied so far to address the problem.
The economic problems created by the general election are, perhaps, more intractable. The election has created so much uncertainty that nobody knows what will happen the next day. Of course, in a period of uncertainty, nothing works because everybody, even the most active person is forced to adopt a wait-and-see posture. It is even worse when there are fears that war may break out or that the country will disintegrate. Therefore, what many people are doing is to go all out to buy and stock foreign currencies which will enable them to quickly vote with their feet when the worst happens. This is the main reason why the demand for dollar is rising every day with no commensurate increase in imports. Unfortunately, this has been the trend since 1999 when the country returned to democratic rule. The condition may not be different when the next general election comes.
And the MPC can do nothing about it. If it likes, let it assemble the best Monetarists in the world to craft the policies with which to tackle the prevailing problems, but I can bet that all the efforts will not yield any dividend. It may be stupid to advise the MPC members to relax and do nothing until after the elections. But that remains the best advice. If the pre-MPC communiqué of the Economic Intelligence Unit of Access Bank Plc is anything to go by, it means members of the MPC have already hearkened to this piece of advice. This, of course, suggests that the MPC meeting of this week will be a mere ritual.