Expectations high as MPC begins 268th meeting today

…Expert wants MPC to reduce interest rate amid inflation declines

Motolani Oseni

Expectations are high as the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) begins the 268th meeting of the committee scheduled to hold from today, Monday, July 22 to Tuesday, July 23, 2019.

This is even as a financial expert has urged the MPC to reduce the Monetary Policy Rate (MPR) by 50 basis points.

The MPC had at its last meeting warned the Deposit Money Banks (DMBs) against investing money in Federal Government Bonds (FG Bonds) and Treasury Bills (TBs) instead of giving it to the private sector as credit.

This, the MPC said, was part of its effort to trigger growth in the economy, lower inflation pressure, given the recent data of April inflation (11.37% as against March figure of 11.25%).

Speaking at the end of the two-day meeting, the CBN Governor, Godwin Emefiele, who presided over the bi-monthly meeting in Abuja, said that government needs to come up with a percentage cut on securities and Treasury Bills (TBs) banks can invest in.

According to the CBN governor, for MPC decision to achieve the trickledown effect on economy and the real sector, in particular, he said that the Committee has given the apex bank management the directive to come up with a policy restraining Deposit Money Banks (DMBs) from investing their funds in government’s securities and the Treasury Bills.

Emefiele said the banks rather than advancing credits to the private sector or real sector of the economy, they direct the funds to purchase securities.

This is even as the MPC voted to hold all parameters of the monetary indices – meaning that the retention of anchor lending rate, (Monetary Policy Rate) 13.5 per cent as adopted in March, retain the asymmetric corridor of +200/-500 around the MPR; CRR at 22.5 per cent and liquidity ratio at 30 per cent.

Emefiele said that the decision of the MPC to retain anchor lending rate (Monetary Policy Rate) 13.5 as adopted in March, across the asymmetric corridor of +200/-500 around the MPR; CRR at 22.5 per cent and liquidity ratio at 30 per cent was to shield the economy from inflationary pressure.

He explained that given the recent uptick in April inflation (11.37% as against March figure of 11.25%) , the majority of MPC members voted for retention.

Shedding lights on a measure to curtain banks restriction on excessive investments in bonds, TBs Emefiele said: “On MPC warning to the banks against Federal Government Securities, the truth is that according to our own regulations there is a particular minimum percentage of treasury bills or government securities that the banks must invest in order to remain liquid.

But again we have observed and unfortunate to an increasingly so that the banks rather than focusing on granting credit to the private the sector, they tend to direct their focus to mainly in buying government security.

“The monetary policy committee has fawned at that and has directed the management of the Central Bank to put in place policies or regulations that will restrict the banks from unlimited access to government securities.

It is important and expedient that, we the MPC gives this directive to the management of the central bank because this country badly needs growth.

Projecting a likely outcome of this week MPC meeting, Prof. Uche Uwaleke on Sunday said that it was also pertinent for the committee to maintain a 30 per cent Liquidity Ratio and 22.5 Cash Reserve Ratio.

According to him, the call for an adjustment of MPR is due to declining inflation rate from 11.35 per cent in May to 11.20 per cent in June as well as the growing external reserves and stability in the exchange rate.

Uwaleke said the reduction was also necessary because of persistent bearish performance of the stock market due to high-interest rates.

The Financial expert said a gradual reduction in the MPR which was the benchmark of the interest rate was consistent with the CBN Governor’s pro-growth five-year the blueprint which he unveiled recently.

Uwaleke, also a professor of Capital Market at the Nasarawa State University Keffi , emphasised that further adjustment was also in line with global trend as the United States and many other economies were pursuing an expansionary monetary policy.

“Reducing the MPR from 13.5 per cent to 13 per cent will still leave real the interest rate in the economy positive and it will also most likely result in increased lending to the real sector.

“This is the expectation, especially now that the CBN is encouraging this including through specifying for banks a minimum of 60 per cent of deposits which must be channelled to the real sector,” he said.

Uwaleke noted that relaxing the MPR would also increase the Gross Domestic Product (GDP) growth which was presently put at 2.01 per cent as at first a quarter of 2019.

He said that besides, the risk to inflation arising from the new national minimum wage might not crystallise while the threat to food production due to farmers and herders conflict was no more as rife as it was previously.