Abuja, May 20, 2024 – Some experts have advised the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to retain the Monetary Policy Rate (MPR) at 24.75 per cent.
The MPR is the nominal anchor of lending rates in the banking sector.
The experts, who gave the advice in separate interviews in Abuja on Monday, spoke against the backdrop of the MPC meeting holding on Monday and Tuesday.
Prof. Ken Ife, an economist, said that the seeming success of aggressive tightening in the last two meetings might propel the committee to further tighten the rates.
Ife, the Lead Consultant on Private Sector Development to the ECOWAS Commission, however, advised the committee to retain the prevailing rates.
“They might want to increase it. The worst case scenario is for them to retain.
“This is because the policy is working to tighten the grip on inflation. It is actually yielding results.
” Even though, relative to last year, inflation is increasing, when you look at month on month inflation, all the five inflation indices are decreasing.
“Headline inflation, which is the composite price index, food basket index, core inflation, urban inflation, and rural inflation. They all went up in the last 12 months, but month on month, between March and April, they all started going down.
” So, the aggressive tightening is working, but it needs more time for the growth to become significant and reflect on the next months,” he said.
According to Ife, the MPR, being less than inflation, is a major challenge for investors.
” Inflation is 33.1 per cent while the lending rate is 24.75 per cent. This does not encourage investment.
” So, the MPR could continue to rise while inflation continues to decline until one gets higher than the other.
“In the prevailing circumstance, private sector investment could be crowded out because if banks are forced to borrow at a high level, their lending rates will also get higher.
” It is advisable to retain the rates but I know that they are minded to increase it,” he said.
Dr Chijioke Ekechukwu, An economist and former President of the Abuja Chamber of Commerce and Industry (ACCI), also advised the MPC to halt further tightening of the lending rate
“At the inception of the new MPC, it has been about tightening. Tightening became necessary because of the amount of money in circulation, which needed to be mopped up.
“This has resulted in a high MPR, which has equally led to a high interest rate in the financial sector.
“Having reached this far, instead of tightening further, they should hold on to the existing rates to be able to see the impact of the tightening that has been done already.
“The more tightening that we have, the more the inflation rate. Today, there is a positive correlation between high MPR and high inflation rate,” he said.
According to him, it is not supposed to be so, but our economic situation is peculiar because there are other factors outside the purview of the monetary policy that also contribute to a high inflation rate.
“For example, food inflation has nothing to do with monetary policy. It is a security challenge.
“Also, the increase in the pump price of PMS has nothing to do with monetary policy,” he said.
Uche Uwaleke, a Professor of Capital Market and the President of Capital Market Academics of Nigeria, urged the MPC to retain the prevailing rates to mitigate the impact of its aggressive policy tightening on Nigerians.
According to Uwaleke, if I were a member of the MPC, I would vote for a hold position as the aggressive policy rate hike is taking a toll on output.
“Production is stifled because of the very high cost of funds. Moreover, the seeming over reliance on the MPR as a tool to tame inflation does not appear to be making any meaningful impact.
“This is due to the significant non-monetary factors driving inflation in Nigeria, such as high cost of energy, transport as well as insecurity in the food-belt regions of the country,” he said.
