Nigeria: Analysts Differ on Retention of 14% MPR

CNB

Nigeria, May 233, 2018//-Analysts have taken different positions on the retention of the Monetary Policy Rate (MPR) at 14% by the Central Bank of Nigeria (CBN).

The analysts expressed their views separate interviews in Abuja on Wednesday.

The Chief Executive Officer, Economic Associates, Dr Ayo Teriba, said to protect the economy and financial market, the MPC was right to retain the MPR at 14 percent.

“If you look at inflation, it has declined for 15 conservative months; also, exchange rate, particularly on the parallel market, has gone down from N500 per dollar in January 2017, to N360 now.

“So, if you’ve got growth increasing and inflation declining, exchange rate appreciating and stabilising, perhaps you will want to leave the economy on whichever course that has produced those results.

“Sometimes, no decision is the right decision. The committee shouldn’t change the rates just to show the world that they are not passive,” he said.

Similarly, Prof. Uche Uwaleke of the Banking and Finance Department, Nasarawa State University, said holding the rates at 14 percent would balance risks in the economy.

“Inflation rate at 12.4 percent is still above the CBN threshold of 9 percent. Single digit inflation would justify easing monetary policy. This is not yet the case.

“Then, rising interest rates in the U.S., following normalisation policy, is already triggering capital flows out of developing economies including Nigeria. Lowering the MPR would induce more capital outflows.

“Again, there is no clarity yet in fiscal policy; late implementation of the budget is capable of worsening liquidity situation and exerting pressure on the forex market, leading to depreciation of the naira,” Uwaleke explained.

According to him, with the 2019 general elections fast approaching, and the expected unproductive spending, the MPR at 14 percent would help mop up excess liquidity.

He noted that reducing the MPR may not necessarily translate to lower lending rates to the real sectors by the banks, due to poor transmission mechanism from structural rigidities.

“On the other hand, increasing the policy rate will increase cost of funds for businesses, lower productivity and most likely increase non-performing loans for banks, since they are likely to re-evaluate their assets.

“So, I think the MPC’s decision to hold the policy parameters is justified,” the don said.

However, the National Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) called for a downward review of MPR to increase domestic productivity and stimulate economic growth in the country.

Mr Tony Ejinkeonye, National Vice-President of NACCIMA, told the News Agency of Nigeria (NAN) in Abuja that easing of the MPR, the benchmark lending rate, would boost the performance of companies operating in the country.

Mr Godwin Emefiele, the Governor, Central Bank of Nigeria (CBN) on Tuesday that eight out of nine members of the MPC voted to retain the MPR at 14 percent.

He said the committee also retained the Cash Reserve Ratio at 22.5 percent, Liquidity ratio at 30 percent and the Asymmetric corridor at +200 and -500 basis points around the MPR.

This signifies no major monetary policy change since July 2016.

“I think that for the economy to receive a positive jolt, the MPR may need to be adjusted to align with the overall economic objective of government in Ease of Doing Business.

“The MPC members understandably are playing safe, but economic success depends on taking the right decisions,” Ejinkeonye said. Independent.ng

 

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