CBN may retain MPR at 14% till 2017 –Emefiele
….Final decision to be taken by MPC’s 11-member committee
….MAN, LCCI, financial experts clamour for interest reduction
…Inflation rate currently at 18.3%
….MPC meets for the last time in 2016
Ahead of the sixth and last Monetary Policy Meeting (MPC) for the year holding today and tomorrow, indications have emerge that the Monetary Policy Rate (MPR) may remain unchanged at 14 per cent until 2017.
This is despite clamour by the Organised Private Sector (OPS) like the Manufacturers Association of Nigeria (MAN) and the Lagos Chamber of Commerce and Industry (LCCI) as well as financial experts for reduction in the benchmark rate in order to check inflation.
Recession has continued to bite harder with inflation accelerated to 18.3 per cent in October and no sign of foreign exchange crisis easing anytime soon. Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, at the weekend, hinted that due to high inflation occasioned by factors outside the control of the apex bank, it would be difficult to reduce the interest rate.
Market analysts, nonetheless, believe that the CBN governor may be a lone voice as the 11 members of the MPC are expected to vote on this crucial issue on Tuesday.
At the 2016 Bankers’ Dinner, Emefiele, who spoke on the state of the banking industry and policy option for Nigerian economy, agreed that the nation is currently facing a situation, which economists describe as stagflation that occurs when Gross Domestic Product (GDP) is falling or stagnates while unemployment and inflation are rising simultaneously.
According to him, economists have agreed that no single economic policy can address fighting inflation and slow growth at the same time. “I have long been a believer in low interest rates. In fact, when I unveiled my vision for the CBN on assumption of office on June 20, 2014, reducing interest rate was one of my cardinal missions.
Yet, it is important that we discussed this issue based on facts rather than on politics or emotions. “With our inflation at over 18 per cent, one must question the judgment of cutting interest rate at this time. Although interest rate is a tool for fighting inflation, with inflation at 18.3 per cent, the apex bank will be failing on one of its cardinal objectives if it cuts interest rate at this time,” he explained.
He however, stated that high inflation does not encourage economic growth, adding that interest rate reflects not just the cost of capital, but also the cost of doing business. “So interest rate should be looked at from the perspective of the lender, who had to provide power, security and incur other infrastructure costs in the course of doing business.
As such, costs are passed on to customers in the form of high interest rate,” he said. He assured Nigerians that the CBN will continue to appeal to deposit money banks to be more considerate in interest rate charges to their customers.
Meanwhile, economic experts expect the MPC to begin an expansionary monetary policy by reducing the MPR and anticipate decisions that will affect the exchange rate.
According to the Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, economic recovery should be the focus of the MPC now.
“They should focus on pumping more liquidity into the system rather than taking it out. Inflation is currently at 18.3 per cent but it is not caused by excess liquidity in the system, it is cost push. It is time for us to address economic recovery.
We need to learn from what the Bank of England did last month to address inflation,” he said. An economic analyst at EY, Mr. Bisi Sanda, equally said the MPC needed to address the challenge of exchange rate volatility.
His words: “The committee must address the problem of exchange rate and look at how banks are committing infractions in the forex market and see how to impose sanctions. Steps must be taken to address the problems causing volatility in the exchange rate. In the past, some people were banned for life from the forex market.”
