Be realistic on interest rate decision, analysts tell CBN

Some financial experts have called on the Central Bank of Nigeria (CBN) take a more realistic approach to his policy decision expected on Tuesday.

The notice comes as the MPC is due to hold its bi-monthly meeting on Monday.

The experts, who spoke to the News Agency of Nigeria (NAN) in separate talks, urged the committee to take practical policy decisions to effectively address the country’s monetary and economic challenges.

A former president of the Chartered Institute of Bankers of Nigeria (CIBN), Okechukwu Unegbu, urged the committee to conduct thorough research on the economy before setting its parameters.

Mr Unegbu said the idea of ​​keeping the same parameters for several months without any positive economic impact made MPC meetings feel like routine.

He urged the MPC to look inward and formulate local policies that will slow down the inflationary trend and bring about real economic growth.

The central bank has held the benchmark policy rate at 11.5% and held all other metrics constant in its past nine meetings.

Thus, the range remained at +100/-700 basis points around the MPR, the Cash Reserve Ratio (CRR) remained at 27.50% and the Liquidity Ratio remained at 30.00%.

According to Mr. Unegbu, the MPC should observe and compare the economic conditions preceding its last meetings and the impact of its political decisions afterwards.

“Keeping the same parameters for so long without visible improvements indicates that the committee and the apex bank are not doing enough,” he said.

“Look at the inflation rate, look at the exchange rate, there has been no noticeable improvement.

“They need to research and compare two or three past meetings to find out the impact of their policy decisions,” he said.

Mr. Unegbu also advised the apex bank to reduce its interventions in different economic sectors so as not to “cause dislocation in the monetary system”.

“CBN’s interventions didn’t change anything; interventions do not work.

“Look at the CBN calling on farmers to repay their loans. Does the apex bank have the capacity to collect these loans?

“Recipients don’t see them as loans, but as their own slice of the national pie,” he said.

Maintaining the same parameters again amid rising inflation and other economic challenges means something is wrong, says Lanre Olaniyan.

Mr. Olaniyan, professor of economics at the University of Ibadan, urged the MPC to be aware of the impact of its prevailing parameters to be properly guided.

However, another economist, Tope Fasua, urged the MPC to be circumspect in its policy decisions so as not to escalate the situation.

“Except we want the CBN to be adventurous, if it raises the monetary policy rate (MPR), it is a signal for depository banks to raise lending rates.

“And, generally, lending rates will go up much more than deposit rates.

“Manufacturers and other stakeholders will blame the apex bank for making their lives more difficult. But if they do, the goal could also be to slow inflation.

“The second point is that if they go down, inflation could keep going up. If we want to be experimental, we could push for a reduction in tariffs,” he said.

Fasua called for improved productivity in the country, adding that a rate cut would boost productivity by encouraging people to borrow more from banks, while depositing less.

“Our banks are quite comfortable but we could do with a lot more productivity in the country, at the risk of a little more inflation,” he said.

At the last MPC meeting in March, the 10 members present were divided on the political decisions and the parameters to be adopted.

Three members voted to increase the policy rate by 25 basis points, one member voted to increase the MPR by 50 basis points while six other members voted to keep all parameters constant.

According to CBN Governor Godwin Emefiele, the committee was of the view that raising rates during inflation could have a negative impact on economic recovery and stifle the expected investment expansion.

Emefiele also said the tightening would reverse the steady improvement in credit expansion, and would not necessarily bring inflation under control.

He added that the committee had decided to adopt a precautionary a policy consistent with current economic conditions.


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