MPC Keeps Rates On Hold Again (8th consecutive time – Last change July 2016)


The MPC decided once again, to maintain status quo after 16 months of no change. The arguments for this decision is that more time is required to ensure that the gains of the current policies are not squandered.

Q3 GDP numbers reveal that apart from the oil and agriculture sectors, most interest rate sensitive sectors shrank and contracted. Annualized credit to the private sector also declined. In other words, the economy minus oil and agriculture are still in recession.

The need for a change in the interest rate policy and direction is now urgent and imperative, if the economic recovery is to be sustained and inclusive.

B.J Rewane takes a deep dive into the MPC decisions. He calls for an acknowledgment of progress and celebration of success, and not vice versa.

Decision – Status Quo & Vigil Economics

  • Retain all parameters and maintain Hold
  • MPR 14% pa and CRR 22.5%
  • Wait for some more clarity before a change
  • After 16 months of waiting – 2 more months will not matter

Rationale for Status Quo

  • Fear of reigniting inflationary pressures
  • M2 at (-5.54%) & Inflation at 15.91%
  • Inflation above 12% is growth retarding – CBN
  • Economic vulnerability to exogenous shocks
  • Oil markets still volatile & OPEC squabbling

We Need Lower Interest Rates Now !!

  • Q3 GDP up 1.4% – growth uneven and fragile
  • Oil sector the main driver +25.44%
  • Agric positive – beneficiary of special interest rates (6 – 9% pa)
  • Manufacturing contracted -2.9%
  • Services declined sharply to -2.7%
  • All interest rate sensitive sectors shrank

Why MPC should have done otherwise?

  • External reserves are up $34.36bn
  • Naira stable in the forex market (N360 – 364/$)
  • Unemployment + underemployment high at 35.2%
  • Credit to the private sector is weak


Lessons from abroad (SSA)

  • Low-interest rate not synonymous with Inflation
  • Countries that cut rates enjoyed stronger growth

Impact on you for Xmas

What Next – Outlook…

  • T/bills rates to decline further to 14% pa (180 days), 23% pa lending rates
  • Q4 growth will be flat at 1.5% – annual growth of 0.9% – 1%
  • Naira to trade flat (N365 – 370/$) in January
  • Unemployment + underemployment to increase to 40%


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