The Monetary Policy Committee (MPC) will be meeting for the 285th time on Monday and Tuesday to decide the direction of the cost of credit to the economy, with expectations high on maintaining the status quo.
At its last meeting in March 2022, the MPC decided by a majority vote to retain the Monetary Policy Rate (MPR) at 11.5 percent, retain the asymmetric corridor of +100/-700 basis points around the MPR; the Cash Reserve Ratio (CRR) at 27.5 percent; and the Liquidity Ratio at 30 percent.
All the analysts polled by BusinessDay expect the MPC to hold the benchmark interest rate following an uptick in inflation rate, fragile growth and other weak macroeconomic indicators.
“The MPC cannot lower rates for now because inflation is on the uptick again. They also dare not increase rates because the manufacturers and other associations will be on their case for damaging their business,” Tope Fasua, CEO, Global Analytics, said.
Nigeria’s inflation rate jumped to 16.82 percent in April 2022, which represents a 0.90 percent increase over 15.92 per cent recorded in March 2022, according to the National Bureau of Statistics (NBS).
Nigeria Gross Domestic Product (GDP) grew by 3.98 percent (year-on-year) in real terms in the fourth quarter of 2021, showing a sustained positive growth for the fifth quarter since the recession witnessed in 2020 when output contracted by -6.10 percent and -3.62 percent in Q2 and Q3 of 2020 under the Covid pandemic, NBS report stated.
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“I expect the MPC to keep rates constant so as not to reverse the economic gains achieved in the past few months. I believe the CBN can use other instruments to raise fixed income interest rates, especially Open Market Operation (OMO) if they want,” Ayodeji Ebo, managing director/CBO, Optimus by Afrinvest, said.
However, he said an increase in OMO rate may not necessarily translate to increase in capital inflows into the country given the FX challenges and hike in global rates.
Ebo believes that increasing interest rate will lead to higher cost of borrowing which will have a negative impact on businesses.
On his part, Muda Yusuf, chief executive officer of The Centre for the Promotion of Private Enterprise (CPPE), said the CBN faces a policy dilemma given the prevailing economic conditions.
“We are faced with spiralling inflation and fragile economic growth. Unemployment level is still quite high. We cannot have a tightening policy in an economy grappling with fragile growth and high unemployment. But the temptation to tighten is quite high.”
Yusuf noted that the credit conditions are already very tight, and that Cash Reserve Requirement CRR is at 27.5 percent, one of the highest globally.
“Effective CRR for some banks is about 50 percent or even more.
Liquidity Ratio is 30 percent. MPR is 11.5percent. These restraining thresholds are already on the high side. Financial intermediation is already being considerably impeded,” he said.