THE Central Bank of Nigeria (CBN) is expected to make critical decisions on where the country’s economy is headed when it holds its first Monetary Policy Committee (MPC) meeting next week.

The meeting will be held amid rising commodity prices, energy, transportation and falling prices of the naira.

The Apex bank has postponed the bi-monthly meeting three consecutive times – September, November 2023, and January 2024- since President Bola Tinubu took power on May 29, 2023. It held the meeting last July 2023.

Headline inflation has continued to surge, reaching 29.9 per cent in January, and food inflation has throttled above 35 per cent, worsening Nigerians’ hardship.

On Monday, February 19, a protest broke out in Ibadan. Oyo State and some other states have recently witnessed mass rallies against government policies, mainly fuel subsidy removal and exchange rate unification, making life more miserable for citizens.

In its ‘Commodity Update’ report released on February 15, the Financial Derivatives firm indicated that commodity prices had skyrocketed.

Its report shows that 50 kilogrammes (kg) of rice has risen to N77,000 from N70,000, garri (50kg) to N25,000 from N20,000, and beans (50kg) to N68,000 from N50,000 within a month. Also, the price of diesel has surged by 17.26 per cent to N1,325/litre from N1,126.69/litre.

The naira has been depreciating against the dollar and traded at N1,551.24/$1 at the official rate and N1,796/$1 at the parallel market on Tuesday, February 20.

Analysts believe the MPC will likely raise the monetary policy rate (MPR) when it meets next week, February 26 to 27.

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President Bola Tinubu sent a list to the Senate last week to confirm his appointment of the committee members. However, the latter has yet to do so, with barely four working days left for the meeting.

The MPC members are the CBN governor (the chairman), the four CBN deputy governors, two directors, and five independent directors appointed by the President.

As the CBN’s highest policy-making body, the committee communicates policy direction to address major economic issues, such as inflation and interest rates, after considering global and domestic headwinds.

It reviews economic and financial conditions in the economy, determines appropriate policy stance in the short to medium term, checks the CBN monetary policy framework, and adopts changes when necessary.

However, investors are worried that the new CBN governor, Olayemi Cardoso, needed to rescue the falling naira and bolster other economic indicators.

In communicating its monetary and financial policy decisions, the MPC decides on the benchmark rate, cash reserve ratio (CRR) and other monetary policy tools after considering global and domestic economic metrics.

Critical decisions at MPC’s meetings

The MPC members make vital decisions at their by-monthly meetings, which include voting to either loosen, hold or tighten the MPR.

It holds the MPR to keep the rate unchanged, loosens it to reduce the rate, or tightens it to raise it.

Between January 2010 and July 2023, the benchmark rate has risen by 1,275 basis points (bps) to 18.75 per cent from six per cent.

The ICIR analysis of data from the apex bank shows that during former President Goodluck Jonathan’s tenure, MPR rose from the single-digit zone of six per cent as of May 2010 to 13 per cent as of May 2015, increasing by 700bps.

The most incredible jump in the MPR in Jonathan’s regime was when the rate rose by 275bps from 9.25 per cent in September 2011 to 12 per cent in October 2011.

Between May 2015 and May 2023, during the immediate past President Muhammadu Buhari, the benchmark rate rose by 550bps to 18.5 per cent from 13 per cent.

The rate, down to 11.50 per cent from September 2020 through May 2022, has continued to rise.

On the other hand, headline inflation has risen by 1,550bps from 14.40 per cent in January 2010 to 29.9 per cent in January 2024, while food inflation rose by 1,951 per cent from 15.90 per cent to 35.41 per cent within the same period.

The ICIR reports that inflation declined during Jonathan’s tenure to 9.00 per cent and food inflation to 9.80 per cent.

On the contrary, during Buhari’s tenure, headline inflation rose by 1,341bps to 22.41 per cent and food inflation by 1,502bps to 24.82 per cent in the review period.

In just seven months of Tinubu’s first term in office, inflation has risen by 749 bps to 29.9 per cent and food inflation by 1,059 bps to 35.41 per cent.

The ICIR analysis shows that Tinubu’s reforms are choking the country’s economy and pushing more Nigerians into suffering.

MPC decisions in recent time

The MPR is the benchmark rate at which the Central Bank lends money to commercial banks.

At the last MPC meeting in July 2023, the committee voted and raised the benchmark rate by 25 basis points to 18.75 per cent, adjusted the asymmetric corridor around the MPR to +100-300, and retained the CRR at 32.5 per cent and the liquidity ratio at 30 per cent.

Simply put, CRR is a fraction of the total deposits of customers, which commercial banks reserve with the Central Bank and is used to determine how banks price their loans to customers.

While the asymmetric corridor is a tool to encourage banks to bring in more deposits to the Central Bank through an increase in the standing deposit rate (SDR), the liquidity ratio is a measure of a company’s ability to pay off its short-term liabilities.

During his inaugural speech on May 29, 2023, Tinubu noted that the benchmark rate was “too high.”

“Interest rates need to be reduced to increase investment and consumer purchasing in ways that sustain the economy at a higher level,” he said.

In economics, if prices of goods rise faster than their target, most Central Banks will tighten monetary policy to rein in inflation.

The committee is expected to raise interest rates by as much as 500 basis points and provide clarity on foreign exchange management that is blamed for turning investors away, Bloomberg reported.

“I believe that MPR might likely be raised when the MPC meets next week,” a finance expert, David Adonri, said.

He explained that the MPC decision might target reducing liquidity in the financial sector where money saturation overheats the money, capital and foreign exchange markets.

“Beyond this, the factors fueling inflation are cost-push. There is a limit to which contractionary monetary policy can affect these factors.

“Only fiscal policy intervention coupled with the restoration of nationwide security can bridge the supply gap terrorising the economy,” he stressed.

Other measures that can address economic hardship

An economist, Muda Yusuf, said even though the ongoing reforms were inevitable to a large extent, it was essential to review them and finetune some of their methodologies in light of their outcomes.

He noted that the economy could not be run like physical science as it is not an exact science but a social science.

“Sometimes, what you expect as the outcome, you don’t quite get,” he said while on Channels TV on Monday, February 19.

He asserted that the situation required a lot of states’ intervention as there was a limit to which the market [monetary side] could solve the problem.

To tame the hardship, Yusuf suggested the need for targeted interventions.

“I am not talking about the distribution of palliative and all of that; I am talking of a system-wide intervention to specific sectors that relate to particularly staple foods, energy, transportation and pharmaceutical products.

“Those interventions are essential, and we can look at the intervention from the fiscal policy, looking at things like import duty, the concession for critical sectors, and having a robust engagement with key stakeholders in production in the entire chain,” Yusuf said.

He said these steps were necessary to stem the tide of the current crises, noting that protests had erupted from various states, indicating a situation requiring emergency response.

“The way out of this is to reveal the current policy, particularly around the management of the foreign exchange environment, and to have a robust engagement with critical stakeholders to develop a specific intervention policy that is well-targeted and not vulnerable to abuse or corruption,” Yusuf added.