26.75% MPR to further squeeze liquidity from banking system, says Prof. Uwaleke

The Special Adviser to the Chairman Senate Committee on Banking, Insurance and other Financial Institutions., Prof. Uche Uwaleke has said the hike in Monetary Policy Rate (MPR) to 26.75 per cent is targeted at further reducing liquidity from the banking system and jerk up cost of credit with adverse consequences on output.

The Monetary Policy Committee (MPC) on Tuesday increased its MPR or interest rate to 26.75 per cent from 26.25 per cent.

Committee after a two-day meeting in Abuja also voted to adjusted the asymmetric corridor to +500bps/-100basis points (Previously: +100 basis points /-300 basis points); retain CRR for Deposit Money Banks at 45per cent, and Merchant Banks at 14per cent and retain liquidity ratio at 30per cent.

The implications of a CBN hike in the MPR are multifaceted, impacting inflation, economic growth, exchange rates, consumer behavior, and financial markets. The overall goal is often to achieve a balance between controlling inflation and supporting economic growth.

Responding, to MPR increase,  Prof Uwaleke stated that, “Having done 750 basis points between February and May this year, I had predicted they would do a minimum of 50basis points or a max of 100basis points in July.

I am glad to note that they chose the floor which is a sign that a complete halt is most likely in their next scheduled meeting in September.

“But the adjustment to the asymmetric corridor around the MPR is a major source of concern for me.

“The MPC communique did not provide any explanation for increasing the SLR from +100 to +500 and the SDR from -300 to -100.

“By implication, with an MPR of 26.75per cent, banks will now get loans from the CBN at 31.75per cent while they will be remunerated for their excess deposits at 25.75per cent.

“This will further squeeze liquidity from the banking system and jerk up cost of credit with adverse consequences on output and the equities market.

“The MPC communique should have made it clear why it was better to mask the tightening in the asymmetric corridor than reveal it in the MPR.

“May I observe that unlike previous MPC communiques, recent ones are silent regarding how the members voted. This information is useful at this stage even before their personal statements are published.”

He added that,  “I submit that as far as taming the current elevated inflation in Nigeria is concerned in view of its major non-monetary drivers, the fiscal side holds the ace.”