Amid Naira scarcity CBN increases Monetary Policy Rate to 18%, CRR to 32.5 %
…Hike in MPR from will hurt investors in the real economy — CPPE
By Seun Ibiyemi
Barely two months after the apex bank raised the interest rate to 17.5 per cent, again the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has raised the benchmark interest rate to 18 per cent amid naira scarcity.
The CBN Governor, Godwin Emefiele, made this known Tuesday while addressing journalists after the committee’s meeting at the CBN headquarters in Abuja.
Nigerian NewsDirect reports that this is the 6th consecutive increase of the MPR, which is the baseline interest rate in an economy.
At the last MPC meeting in January, it was increased by 100 basis points, from 16.5 per cent to 17.5 per cent.
According to Emefiele, 10 out of the 12 Committee members present at the meeting voted for a moderate rise in the MPR
He, however, said that all other parameters remained constant.
The Asymmetric Corridor of +100/-500 basis points around the MPR, the Liquidity Ratio of 30 per cent and Cash Reserve Ratio (CRR) of 32.5 cent were thus retained.
According to Emefiele, the committee debated whether to continue the rate hike to further check inflation.
He said the MPC also considered whether to hold the rate to observe emerging developments and allow for the impact of the last five rate hikes to permeate the economy.
“Loosening in the view of the committee members would undermine gains so far achieved
“MPC observed the upward risk to price development and expectations of the removal of the Premium Motor Spirit (PMS) subsidy.
“These, in the view of members, provide a compelling argument for an upward adjustment of policy rate, albeit less aggressively,” he said.
He also said that the apex bank’s Naira redesign and cash withdrawal policies had resulted to a sizeable reduction in currency outside the banking system.
According to him, that is an indication of improvement in the potency of monetary policy tools of the CBN.
Amid the uncertainties being faced by Nigerians due to the scarcity of the redesigned Naira notes, the nation’s inflation rate rose to 21.91 percent in February compared to 21.82 per cent in January.
According to the nation’s statistics bureau, the February inflation rate showed an increase of 0.09 percent points when compared to January’s headline inflation rate.
Emefiele said the apex bank’s tightening measures had started to address inflationary pressure.
“We believe that as we continue this process that inflation will eventually begin to trend downwards,” he said.
“Whether we like it or not, between now and May, or the end of the administration, we will expect that subsidy will disappear. Subsidy removal has its own implication on prices which is inflation, so we are not optimistic that prices will continue to come down because of these measures but we feel we need to continue to tighten,” he said.
According to him, the important thing is for the committee to watch the margin between the policy rate and inflation.
He said the margin has remained negatively wide, “and in economics, when you find negative real rate, it is a disincentive to new investment”.
He argued that everything has to be put in place by the monetary policy authorities to reign in inflation.
Also, Mr. Emefiele said the committee will be moderate in its steps to reign in inflation because it is conscious of the fact that when the rate is over-tightened, it could have negative impact on the banking sector, the financial ecosystem, and the stability of the economy.
Reaction
Hike in MPR from will hurt investors in the real economy — CPPE
Reacting to the development, in a chat with Nigerian NewsDirect on Tuesday, the Chief Executive Officer (CEO), Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said CBN’s hike in MPR from 17.5 per cent to 18 per cent will hurt investors in the real economy.
He said, “The victims of the continuous hike in the monetary policy rate are the investors in the real economy and other entrepreneurs in the economy.
“Increase of the MPR to 18 per cent means an additional burden on business as it will result in a spike in cost of credit.
“Production costs would increase, sales will drop, profit margins will shrink and investors confidence will be negatively impacted.
“The reality is that ways and means financing, high energy cost, and foreign exchange challenges are much bigger factors in the inflation equation.
“The CBN should pay greater attention to financial system stability at this time. “Recent developments in the global financial system underscores the imperative of cautious interest rate hikes.
“The CPPE is concerned about the stifling effect of the high CRR of 32.5 per cent on the banking system stability and financial intermediation role of the banking system.
“It is regrettable that the CBN Governor did not acknowledge the pains and sufferings that ordinary citizens have been going through on account of the cash crisis.
“The CBN Governor should have shown some empathy and apologise to Nigerians for the trauma inflicted by the cash crisis.”
Also financial expert, Dr Tunde Adeoye, says increasing Monetary Policy Rate (MPR) from 17.5 per cent to 18 per cent by Monetary Policy Committee (MPC) of Central Bank of Nigeria (CBN) can lead to a prolonged downturn in economic activities.
Adeoye, who is also a Senior Lecturer at the Department of Economics, University of Lagos, said this on Tuesday in Ota, Ogun.
He stressed that the MPC was already tightening the MPR beyond measures through its Naira redesign and cash swap policy.
Adeoye said that the development had already mopped up enough money in the circulation and led to a situation where people could not easily have access to their money.
“One of the implications of continuous tightening of the MPR, otherwise known as benchmark interest rate, is that people would not have money for investment.
“In addition, more people are likely to lose their jobs, fall in people’s income and result to economic depression,” Adeoye said.
According to him, the MPC could have embarked on an ‘ease policy’ than further tightened the economy which was already hitting up.
A former President, Association of National Accountants of Nigeria (ANAN), Dr Samuel Nzekwe said that increasing the MPR would limit the number of people coming to the banks for loans.
Nzekwe said that this would made the cost of borrowing higher and restrict borrowing.
“The MPC should have waited for the economy to stabilise before thinking of increasing the MPR in their next meeting,” he said.
The Ex-ANAN president noted that people had not been doing any business transactions since January due to the lack of cash in the circulation.
