19 February 2018

Nigeria: MPC Stalemate - CBN to Maintain Forward Guidance As Policy Tool

Following the Senate's refusal to consider President Muhammadu Buhari's nominees to fill the vacancies in the Monetary Policy Committee (MPC), the Central Bank of Nigeria (CBN) has decided to hold on to forward guidance to communicate its monetary policy intentions pending the resolution of the dispute between the legislature and the executive arms of government.

The suspension of confirmation of the nominees by the Senate has made it impossible for the MPC to form a quorum and could, therefore, not meet to take up its role of monetary policy guidance.

A senior central bank official disclosed this to THISDAY yesterday.

Forward guidance is a verbal assurance from a country's central bank to the public about its intended monetary policy. It attempts to influence the financial decisions of households, businesses and investors by letting them know what to expect from interest rates (to the extent that the central bank can influence those rates). The central bank's clear messages to the public are one tool for preventing surprises that might disrupt the markets and cause significant fluctuations in asset prices.

The first MPC meeting for 2018, which would have held last month did not hold. But in the absence of the meeting, the CBN had announced its decision to continue to retain the key monetary policy variables as decided by the MPC at its last meeting in November 2017.

The CBN source explained: "There would be forward guidance. The management of the central bank will continue to issue forward guidance.

"If you remember there was a time in this country when MPC wasn't statutory, the economy was running, and the central bank was issuing forward guidance.

"So, there is no problem, the central bank will continue to issue forward guidance. I don't think the emergency meeting will hold."

THISDAY reported exclusively last November that eight positions in the 12-member committee were vacant, making it impossible for the committee to form a quorum.

THISDAY had also reported about a fortnight ago that the Senate was not budging on its resolve not to consider the MPC nominees.

The lawmakers had maintained that they would not confirm any nominee by the executive until the impasse regarding the nomination and non-confirmation of the acting chairman of the Economic and Financial Crimes Commission (EFCC), Mr. Ibrahim Magu, was resolved.

The lawmakers also said the Senate had resolved to seek a legal interpretation of a comment made by Vice-President Yemi Osinbajo that the position of the EFCC chairman did not require the confirmation of the Senate, as it was not specified in the constitution.

As a result of Osinbajo's remark, the Senate had resolved to suspend the confirmation process for all nominees of the president not specifically mentioned in the 1999 Constitution, but are provided for in the establishment Acts of several agencies of the federal government such as the CBN, FIRS, NCC, and others.

Commenting on the decision by the CBN to issue forward guidance, the Director General of the West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, described it as a temporary arrangement, saying the central bank was in a dilemma.

Ekpo, who is a former MPC member added: "This so-called forward guidance is very temporary. It is an attempt to fill a yearning gap. But to me, it is not the best thing to do. But currently, the central bank cannot do anything, and you can't blame the CBN for trying to find a way out.

"I wish this matter can be resolved. The stalemate is very sad. They are playing politics with the economy and it is very unfair. When you create uncertainty in the system, the foreign investors we are looking for may be discouraged. In most countries, the MPC is the engine room. If they cannot meet because of lack of quorum, it is very unfortunate.

"I thought the National Assembly should realise that they are not attacking President Muhammadu Buhari as a person, what they are doing is affecting the national economy."

The CBN Governor, Mr. Godwin Emefiele, had last month announced that the benchmark monetary policy rate (MPR) was retained at 14 per cent, the cash reserve requirement at 22.5 per cent, liquidity ratio at 30 per cent, while the asymmetric corridor retained at +200 and -500 basis point around the MPR, as decided at the November meeting of the MPC.

He stressed that the central bank would remain proactive and vigilant in ensuring that macroeconomic stability was maintained.

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