As the Central Bank of Nigeria (CBN) holds its first Monetary Policy Committee (MPC) meeting on Monday, some financial experts have suggested retention of current policy rates.
Speaking in separate interviews with the News Agency of Nigeria (NAN), they said that such policy stance would allow for market stability in the new year.
According Uche Uwaleke, a Professor of Capital Market at the Nasarawa State University, Keffi, increasing the Monetary Policy Rate (MPR) now could jeopardise economic growth.
Uwaleke said that the MPC is likely to hold all existing parameters for two reasons.
“One, historical evidence suggests that the MPC seldom adjusts policy rates in January due to the need to allow the markets to stabilise in the new year.
“Secondly, inflationary pressure is beginning to reduce as seen in headline inflation numbers for Dec. 2022, not only in Nigeria but also in the United States.
“I do not advise a further hike in MPR, as doing so beyond the current high rate of 16.5 per cent is capable of jeopardising economic growth, ” he said.
An economist, Dr Tope Fasua, urged the CBN to shun temptation to further increase the rates.
Fasua suggested that the rates should be retained and be guided by market trends, adding that constantly increasing interest rate could spur recession.
”I hope they hold rates as is and watch what happens.
“Already inflation trended down 0.14 per cent, they may be tempted to further increase rates to accelerate the fall.
“But they need to now think about the fact that constant raising of interest rates could spur recession as life becomes harder for manufacturers,” he said.
According to Dr. Muda Yusuf, Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Nigeria’s Cash Reserve Ratio (CRR) and MPR are among the highest in the world.
“The CRR of 32.5 per cent and MPR of 16.5 per cent are among the highest globally. High CRR in particular has become a key impediment to financial intermediation by the banks.
“There is need for the CBN to ease up on its tightening stance and cut some slack on some of its liquidity mopping measures,” he said.
Analysts at Financial Derivatives Company (FDC) said that inflation is expected to ease further in January.
The analysts, however, projected that high interest rate would have to be retained if the apex bank intends to continue to tackle inflation.
“As long as the CBN remains committed to tackling inflation, the high interest rate environment will persist in 2023,” they said.
According to analysts at Cowry Assets Limited, the policy committee may be tempted to pedal softly on its tightening stance by a token hike of 25 basis points.
”We believe that a moderate reversal in the headline numbers will skew the voting pattern of the committee members in favour of maintaining a tightening stance.
“Regardless, the lag-effect from the policy tightening may take longer in reality as Nigeria has a weak policy transmission system,” they said.
NAN reports that the MPC is expected to hold its first meeting in the new year on Monday and Tuesday.
The committee had raised benchmark interest rate (MPR) to record high of 16.5 per cent in its last meeting in Nov. 2022 in an effort to curb the escalating inflation rate Inflation rate had risen to 21.47 by Nov. 2022. (NAN)