The last MPC meeting held in July 2021 followed a similar pattern with the policy meetings held earlier in the year, albeit with the clampdown on the operations of BDCs.
The persistent downtrend in inflation provided some level of comfort for the policymakers to sustain an accommodative policy stance; hence, all twelve committee members unanimously voted to retain all policy parameters.
The MPR was kept at 11.5%, with an asymmetric corridor of +100/-700 basis points around the benchmark interest rate; CRR was retained at 27.5%; and the Liquidity Ratio was put at 30%. However, the Apex bank expressed its discomfort with the activities of the Bureau De Change operators (BDCs), describing their conduct as antithetical to the intent of their establishment.
Particularly, the CBN raised concerns about their wholesale dealings and the extraordinary spread made on FX sales. Accordingly, the Apex bank halted the $20,000 weekly intervention given to all operators and stopped the issuance of new licenses to BDCs including those in the pipeline.
Since the last MPC meeting in July 2021, there have been noticeable movements in dominant macroeconomic variables. The YoY headline inflation decelerated for the fifth consecutive month to 17.01% in August 2021; brent crude inched up slightly by 1.60% from $74.48/bl on the 27th of July 2021 to $75.67/bl yesterday; local oil production rose slightly by 0.76% from 1.31mbpd in June 2021 to 1.32mbpd in July 2021; the exchange rate on the I&E FX Window fell by 34bps from $1/₦411.67 to $1/ ₦413.07; and the position of our FX reserves improved by $1.94 billion from $33.33 billion on the 27th of July 2021 to $35.27 billion on the 15th of September 2021, as it appears that the CBN has starting drawing the IMF SDR allocation.
While inflationary drivers remain untamed, the high-base-effect-induced moderation in the headline and food inflationary metrics provided the monetary authority with the leeway to maintain its current policy stance.
Likewise, the Q2 2021 real growth strengthening (5.01%), improvements in the position of our FX reserves, as well as the gradual rise in the manufacturing and non-manufacturing PMI, all steered the decision of the committee.
Accordingly, at the end of the two-day bi-monthly MPC meeting, all policy levers were maintained, following a unanimous vote by all members of the committee.
Intensifying the FX Battle
Following the decision in the last MPC meeting to stifle the activities of BDC operators, the Apex Bank intensified the battle to protect the Naira from speculators by targeting the ownership, intent, and processes of Aboki FX, a popular source of black-market exchange rates. While noting that the Apex Bank has the necessary arsenal to provide for all legitimate dollar needs via the commercial banks, the CBN Governor opined that the activities of speculators have sponsored the FX crisis to a large extent.
In this regard, the Governor noted that the business model, financial filings and pricing methodology of Aboki FX are all questionable. Hence, the bank looks to ensure that the activities of the business and the owners are shut down as they fuel FX speculation and manipulation.
In a characteristic manner, we expect a downward knee-jerk reaction to the statement of the Governor on the FX market, but the CBN’s ability to enforce the guidance given to commercial banks will be the deciding factor as to whether stability will return to the market in the near term.
Another impetus that could further support the market in the near term is the Governor’s statement on allowing legitimate dollar needs access the much-needed funds in excess of established limits.
In other news, the CBN Governor re-affirmed that the E-naira will be launched on the 1st of October, 2021.