ABUJA (Sundiata Post) - The monetary policy committee (MPC) is meeting today and tomorrow in Abuja to deliberate over surge in inflation and contraction in the economy.
The MPC in May 2016 left the policy rate of 12% and banks’ cash reserve requirement unchanged but made the pledge on the naira exchange rate. The communique concluded that it was “the least risky option to hold and we would not be surprised by the same judgment this week. The committee faces a similar landscape but worse.”
Headline inflation has since increased by more than two percentage points to 16.5% Year-on-Year (y/y) in June, and the core measure to 16.2%. The latest commentary from the National Bureau of Statistics identified energy products and import costs as the main culprits for the acceleration.
Analysts believe that until the new exchange-rate regime attracts sizeable autonomous inflows, the headline rate are likely to continue picking up. In May, the committee viewed the surge as driven by factors which it variously described as legacy, transient and supply-side. Its point was that they could not really be influenced by monetary policy.
On growth, the Federal Government indicated that another contraction in Gross Domestic product (GDP) is due in Q2 2016 following -0.4% y/y in the first quarter, and suggested that thereafter the positive stimulus of the 2016 budget will start to have an impact.
Sundiata Post gathered that the committee in May suggested that many of the developments in the economy (and not just inflation) were outside its direct control. Its subtext was that it had few weapons in its arsenal still to deploy, and was looking for support from fiscal policy and structural reforms.