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MPC retains policy indicators

The monetary policy committee (MPC) kept the key monetary policy indicators unchanged at the just concluded MPC meeting which was held on Jan 21, 2012 in Abuja, Nigeria. Expectedly, key factor in the decision to keep the benchmark interest rate unchanged include the perceived double hedged sword of risk due from the adopted oil price benchmark in the 2013 appropriation, in addition to the conflicting signals of the global economic outlook in the short term.  



Key Decisions:

MPR:     retained at 12% with the 200bsp corridor

CRR: retained at 12%

Liquidity Ratio: retained at 30%

The committee found the current level of MPR at 12% appropriate in the light of the stability achieved with inflation, which averaged 12.4% in the last 12 months.

While the committee considered a reduction in the MPR because of the benign inflation outlook and depressing growth prospects, the threat that fiscal stance poses are considered overwhelming. The increased sub-national government spending and Federal Government high expenditure in 2013, the higher benchmark oil price in the 2013 budget and the US debt ceiling with possible impact on commodity prices could destabilise the price objective of the monetary authority.

With two members of the committee voting for outright reduction of the MPR by 25 basis points amidst sustained clamour for the reversal of the monetary tightening, it is arguable that the monetary authority is moving closer to it. In this respect, market response to unchanged posture of the monetary authority at this meeting is likely to be read as such with key indicators maintaining trend. We are likely to see a sustained bond yield contraction as FPI keeps coming. Short term interest rates are likely to also remain either flat or decrease mildly on the average in the short term on the back of tenacious systemic liquidity surfeit regardless of CBN Treasury operation. The stability of the Naira exchange rate is also expected to be sustained by the strong FPI outlook in the short term.