What Nigeria's MPC needs to consider ahead of its rate decision


Traders remain cautious as Africa’s largest economy, Nigeria prepares for its Monetary Policy Committee (MPC) announcement on Tuesday.

Atiku Audu, Head of Fixed Income and Currency at Cardinal Stone Partners, lists the possible things to consider ahead of the meeting:

– “I think there are two major issues to consider, on the one hand you have the fact that Nigeria is heavily indebted by about 60 billion dollars, total debt, domestic and international.”


 – “You have the fact that we have a serious fiscal deficit, about 2.2 trillion.”

– “If you look at net monthly import demands…” it is close to 6 billion dollars whereas we only get oil receipts of about a billion dollars – so you have a 5 million dollar gap already on a monthly basis.

Based on those pressures Audu reckons it makes the case for a devaluation of the currency – However he thinks it could go another way too…

– “First of all, the political expediency, it’s not a popular measure, I mean prices would go across the board, everything from food to housing to commodities would go up in prices because we import everything.

– “Inflation has been on the rise, inflation is now on 9.6 per cent – just shy of the double-digit 10 per cent and the CBN’s upper target is 9 per cent, we are already above that so I don’t think it is something to spiral out of control.”

– “The trend has been upwards for the past 6/7 months now – inflation has consistently been trending up and we are heavily import dependent.

– “We haven’t really built our local industries to the point where we are are comfortable buying and settling for Nigerian goods just yet.”

– “If you look at where BDC (Bureau de Change) rates are now, at historic highs of over 300-305, these factors cascade into the prices of goods and services in the economy today.”

Audu believes there has been a concerted effort towards reducing interest rates on the monetary policy side: “If you look at what happened at the last MPC where MPR (Monetary Policy Rate) was lashed 200 basis points to 11 per cent, where CRR (Cash Reserve Requirement) was dropped 500 basis points to 20 per cent.

– “I think it makes the case for the fact that the government is actually looking to borrow more but they want to borrow cheaply.”

Nigerian Minister of Finance, Kemi Adeosun last week was quoted saying the country is looking to borrow an additional 5 billion dollars to plug the deficit gap.

– “If they want to do that, they probably don’t want to do that at high rates – she stated that they will be looking at just getting a billion dollars from bonds and the balance would be from multinational institutions.”

– “The government is looking to borrow more but I am quite confident of the fact the government is looking to see how shapely they can actually initiate that borrowing.”