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MPR: Experts speak on CBN’s monetary policy decision - PREMIUM TIMES

JANUARY 29, 2023

The CBN should resist the temptation to further increase the Monetary Policy Rate, some experts warned.

ByAyodeji Adegboyega

Economists and policy experts have raised concerns over the Central Bank of Nigeria‘s recent decisions regarding the benchmark interest rate and other monetary policy issues in the country.

The Central Bank of Nigeria’s Monetary Policy Committee on Tuesday raised its benchmark lending rate to 17.5 per cent in an aggressive push to contain the nation’s inflationary pressure.The committee in November had raised its rate to 16.5 per cent in a sustained push to control inflation and ease pressure on the naira.

However, some experts have warned the CBN to resist the urge to continually increase the rate in its bid to fight inflation.

A former deputy governor of the CBN, Kingsley Moghalu, and a policy expert, Damian Ude, in a policy brief publication titled, “Inflation and Poverty in Nigeria: Explainer,” for the Institute for Governance and Economic Transformation (IGET) warned against further hike in the rate.

“The CBN should resist the temptation to further increase the Monetary Policy Rate. The deployment of this monetary tightening tool should be put on pause,” they wrote.

“Prior distortions and contradictions in monetary and foreign exchange, the structural component of inflation in Nigeria, and inflation expectations, have blunted the ability of the MPR to control inflation at this time.

“Tightening the money supply remains important, but this should be pursued through other means of controlling the rate of money creation.”

CBN advances

The experts also advised that the bank reduce its advances to the federal government to curb inflation, with reference to the deficit financing of the national budget through the N22.7 trillion Ways and Means Advances by the Central Bank of Nigeria (CBN) to the federal government.

For Tope Fasua, an economist, the rate increase should lead to increase in deposit rates for those who invest their funds short-term with banks.

“They are meant to be encouraged. Idle funds will park more in banks. It will also lead to higher FG bond and Treasury Bills rates so the CBN will mop up funds more easily. It will lead to some reversal of funds seeking exit from Nigeria.

“However it will lead to higher borrowing rates and negatively affect companies and manufacturers that borrow capital for their survival. If unchecked it could also lead to an economic recession as higher rates slow down productivity and increase unemployment” he said.

Samuel Bamidele, an economist, noted that Nigerians should theoretically expect the deposit interest rate to rise.


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