As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) prepares for its July meeting, some financial experts have called for moderation in its decisions.
The CBN has announced that the 292nd meeting of the MPC will be held on Monday and Tuesday, to be chaired by Folashodun Shonubi, the acting governor of the CBN.
This will be the fourth MPC meeting of 2023 and the first in about nine years to be chaired by someone other than the suspended CBN governor, Godwin Emefiele.
At the last MPC meeting in May, Mr Emefiele announced the committee’s decision to raise the Monetary Policy Rate (MPR) for a seventh consecutive time from 18 to 18.5 per cent.
That is the highest since the MPR was established in 2006. The CBN started its monetary policy tightening in May 2022, when the MPR, which is the benchmark interest rate, was increased from 11.5 to 13 per cent.
A financial expert, Uche Uwaleke, disclosed that the decision of the MPC in the July meeting will be influenced by the rising inflation expectations, largely due to the sudden removal of fuel subsidy.
Mr Uwaleke, a professor of capital market at the Nasarawa State University, Keffi, said pressure on the naira and exchange rate volatility occasioned by the recent naira float would also influence the MPC decision.
“The acting CBN governor, who will be chairing the meeting, has been part and parcel of the hawkish MPC stance for months now, so another rate hike will not come as a surprise.
“Be that as it may, the MPC should equally recognise that the removal of fuel subsidy has slowed down economic activities considerably with attendant drop in productivity,” he said.
He said a further increase in the MPR was also likely to endanger banks’ asset quality by increasing non-performing loans as Deposit Money Banks (DMBs) repriced their loans.
According to Okechukwu Unegbu, a past president of the Chartered Institute of Bankers of Nigeria (CIBN), the MPC should lower the MPR to allow easy access to credit for the economy’s productive sector.
Mr Unegbu said since the lending rate in banks is dependent on the MPR, lowering it would be more beneficial for economic growth by allowing more accessible access to funds for the manufacturing sector and small businesses.
He, however, said the idea of DMBs using the MPR to decide their lending rates should also apply to interest rates on savings.
“I expect the MPC to reduce the rates this time so that banks can reduce their lending rates in order to encourage lending to the productive sector of the economy,” he said.
Yemi Kale, partner and chief economist at KPMG Nigeria, said the MPC faced a dicey meeting since Mr Emefiele was suspended.
According to Mr Kale, economic growth is slow and fragile and needs liquidity.
He said the inability of the CBN to control inflation had been largely due to the main drivers of inflation being structural and supply-based, which could not be controlled effectively with the money supply tools available to it.
He added that the recent growth in money supply following the various reforms would likely worsen inflation.
” However, I expect that the CBN will be more concerned about inflation being its core responsibility and will tighten the MPR further but release the Cash Reserve Ratio (CRR) to support the economy,” he said.