Post MPC – NOVEMBER 2021 (Re: The rate of inflation & the limitations of monetary policy)

Dear Subscriber,

The monetary policy committee held its last meeting for 2021 yesterday and maintained status quo on all parameters. In the last 4 years, the MPC maintained status quo 89.29% of the time. Even though the market anticipated this outcome, this time more than ever, the decision was considered a prudent and wise move.

Policy makers had been caught in a trilemma of macroeconomic choices in a period when Nigeria does not have the luxury of time. With the 2023 general elections only 400 days away and in the words of Maya Angelou, Nigerians are “hoping for the best, prepared for the worst, and unsurprised by anything in between”.

It’s all about inflation! inflation!! inflation!!!

Rising inflation is now a global and regional problem – US (6.2%), Eurozone (4.4%), Ghana (11%), South Africa (5%) – yet in Nigeria, inflation is reported to be slowing. Analysts are of the opinion that the numbers may not reflect market conditions. Some are more concerned about the divergence between anecdotal and empirical data. Our synthetic Lagos basket of selected items, for example, shows that prices have surged by an average of 94.7% in the last 12 months as compared to the average of the national basket (15.99%). Whilst policy makers are determined to combat price inflation, consumers are caught between inflation psychology and inflation expectations.

You can’t clap with one hand – A lesson from Ghana

For the first time in six years, the Bank of Ghana increased its benchmark interest rate by 100bps to 14.5%pa, in response to rising inflation and a weaker Cedi. At the next Nigerian MPC meeting in January, we believe that the committee could take a cue from the Sub-Saharan African region and could increase interest rates if inflation spikes again. This could also help to preserve the value of the naira in the foreign exchange market. The naira had lost 15.94% between November 2020 and November 2021 from N483/$ to N560/$.

In the slides and video link, Bismarck Rewane gives an in-depth analysis of the MPC’s decision and its impact on consumers disposable income and the strength of the naira in the forex market.

Enjoy your read