CBN may convene emergency meeting to resolve monetary policy crisis

Piqued by the consistent failure of its policies to hit the right cord over the past few months, the Central Bank of Nigeria (CBN) may soon convene an emergency meeting of the Monetary Policy Committee (MPC) to review some of its policy directions in the days ahead.

The said emergency meeting is expected to come ahead of its scheduled meeting in July when a major decision on the benchmark rate would be announced. A senior market analyst, who gave indications of a possible reversal of the various policy rates, told Daily Sun in Lagos that the optimism about this was underpinned by the MPC’s emphasis on the need for domestic growth as a key consideration amongst other indicators. 

This is coming after the apex bank stated last week that it was frustrated by the failure of its monetary policies to work in sync with policy objectives in the current dispensation as it retained the Monetary Policy Rate at 12 per cent.

Finance and investment experts, however, expressed worries that the unhealthy policy regime may have triggered a chain reaction that cut total subscription at the auction to N307.30 billion, as against N513.44 billion at the auction held a fortnight ago.

This reduced level of subscription may not be unconnected with the observed decline in interest of offshore investors as they try to sell down their domestic debt holdings and withdraw the funds thereby putting more pressure on the local currency against the US dollar

Meanwhile, Nigeria’s treasury bills market witnessed a primary auction at which N30.65 billion worth of 91-day bills was sold at the rate of 13.50 per cent against 13.19 per cent at the previous auction, whilst N45 and N50.68 billion worth of 182-day and 364-day bills was sold at the rate of 14.14 per cent and 14.30 per cent against 13.87 per cent and 13.94 per cent during the last auction.

Market watchers argued that the increased liquidity within the system led to the slight decline in the bond yields and informed further liquidity tightening by the CBN as N500 billion OMO bills were offered at the three OMO auctions whilst N7.70 billion was sold, at discount rates ranging between 13.24 per cent and 13.40 per cent with maturities between 41 and 57 days.

However, we observe the low level of allotment on the offered OMO bills as a result of high rates submitted by investors. It is believed that the outcome of the OMO sales suggests that operators appear to be resolute in taking maximum advantage of the monetary policy.

This week for instance analysts expect the CBN to sustain the liquidity tightening given the level of the high system liquidity resulting from activities of the previous week.

Although major highlights of the week include the inflow of over N1.1 trillion (US$7.1 billion) into the system as a result of disbursement of budgetary allocations for April 2012 and the maturing of treasury bills and FGN bonds, the MPC’s decision to hold MPR at 12.00 per cent, and the inflow from the matured securities, led to a consistent increase in bond prices across all maturities as a result of demand pressure.