The Monetary Policy Committee (MPC) — the Central Bank of Nigeria’s (CBN) rate-setting committee — meets today (and tomorrow) under a new governor. Sanusi Lamido Sanusi, the former governor, had worked so hard to burnish the central bank’s inflation-fighting credentials, and strengthen domestic financial stability, such that his successor was always going to be judged rather harshly. In the event, Mr. Godwin Emefiele’s initial steps, as the new CBN governor, did not quite render him in positive light.

Inevitably, much speculation has trailed today’s meeting. But reading the economy’s tea leaves, it is hard to see this meeting moving the needle in any direction. Of course we hear that unlike previous such meetings, the MPC convened since Friday, last week. It makes sense if they chose the period together to dimension the challenges likely to confront the economy over the next 9 months; and to agree appropriate policy responses.

Until the release, last week, of the new numbers, I was persuaded that inflation is one of the lesser concerns confronting today’s meeting. On Wednesday, the National Bureau of Statistics (NBS) released the consumer price index count for June. At 8.2%, it is up on May’s 8%. Accordingly, headline inflation has nosed up in each of the last four months. Food prices appear to be the main culprit here — having moved from 9.3% in March to 9.8% in June.

Then there’s the more troubling core count (6.8% in March to 8.1% in June). MPC members would tell you that because it speaks to price fundamentals this is their measure of choice. On balance, then, there is potential for inflation to shock. When? I would imagine that the fourth quarter would be the trouble zone. Still, the year-on-year movement of headline domestic prices is within the CBN’s target band of 6% – 9%. Whereas there is not much to get excited over now, June’s numbers have moved inflation considerations back into the “keep in view” tray from the “out” tray it was in two months ago.

In the “in” tray is a much bigger worry. The consensus amongst all the experts on the economy that I have spoken with is that we do have a currency risk. Now, this threat has been there for a while. It is essentially the possibility of a devaluation of the currency in response to any of several shocks – either because yields turn up in the US; or because domestic events spook foreign portfolio investors into a lemming-like dash for the exit signs.

The major threat from this source is a derivative. Because we are an import-dependent economy, the naira’s loss of value would have a welfare effect, through both the rise in the prices of imports of finished goods, and via the pass through to domestic production from higher input prices. More importantly, most commentators expect this risk to remain way past 2015’s St. Valentine’s day elections.

The MPC’s main challenge in the circumstance is how to implement monetary policy responses in ways that do not destabilise the markets. In very basic terms this is a “no currency shocks” requirement. In practice, however, I was reminded, last week, how difficult this goal is of achievement. The paradox that is the MPC’s current position is that the balance on the official reserves is its main tool for defending the naira’s exchange rate. At the same time, reserve balances, to the extent that they signal an economy’s ability to meet its external obligations, also help to support investments in naira-denominated assets. Every time, therefore, that the CBN intervenes in support of the naira, it drives the balance on the foreign reserves down. Lower reserves, on the other hand, enervate the naira as a store of value.

This reserve constraint has worsened even as we witness the dollarisation of banks’ balance sheets. According to a well-informed source, dollar deposits as a share of domestic banks’ balance sheets topped 30% on average at the last count. Ordinarily, this process should reflect growth in export earnings from the re-allocation of domestic resources in favour of tradeables. In our case, however, in the absence of strong evidence of this happening, two other possibilities are recommended.

First is the possibility of currency substitution. No doubt much of this has taken place as we see continuing liberalisation of the capital accounts — and as savvy (and rich) domestic actors seek to hedge their naira exposures. Nonetheless, such is the size of the dollar deposits, that a second possibility is likelier. And this is the possible inflow into banks’ coffers of the proceeds from the privatisation of oil export earnings — a process that has turned industrial over the last four years. Few argue any longer that this diversion of oil export earnings into private reserves is taking place. But for most commentators, the critical question that arises on this basis is: “How liquid is the system?”

Allied to this is a second question: “What liquidity ought we to be looking at?” In other words, which of these new liquidity buckets, naira and dollar, potentially has the largest impact on exchange rates? Today’s MPC meeting should address its considerable resources to understanding these questions; and to structuring its reaction function around this understanding.