CBN too much in hurry to effect increase in MPR to 27.25%, says expert

A Lagos based financial & management consultants, Mr. Kola Amzat has expressed that the members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria were too much in hurry to effect  increase in its Monetary Policy Rate (MPR) or interest rate from 26.75 per cent to 27.25 per cent.

The committee members after a two-day meeting in Abuja voted to hike the MPR by 50 basis points  to 27.25 per cent in September 2024 from  previous 26.75 per cent.

Additionally, the committee on Tuesday elevated the Cash Reserve Ratio (CRR) by 50 basis points, increasing the requirement for Deposit Money Banks (DMBs) from 45per cent to 50per cent, and for Merchant Banks from 14per cent to 16per cent.

The committee has decided to maintain the Liquidity Ratio (LR) at 30per cent and the Asymmetric Corridor at +500/-100 basis points in relation to the MPR.

The hike goes against analysts expectation on the backdrop of slowdown in inflation rate. Nigeria’s inflation rate fell for a second consecutive month in August 2024, down to 32.15per cent year-on-year from 33.40per cent in July 2024.

Responding on the MPR hike, Amzat stated “Even though, MPC resolved to maintain the LR at 30per cent, they also effected increase in another monetary policy tool– CRR, both for the Commercial and Merchant Banks which also went up by 50per cent basis points, from their previous position in August.”

“Even though, CBN have their reasons for the hike, especially the recent sudden increase in petroleum products with particular reference to PMS, nonetheless, this increase is surely against the expectation of the investing and banking community, and may be counter-productive to economic activities.

“MPR, a benchmark policy interest that prescribes the basis for other macroeconomic interest rates in Nigeria should be treated at all time with sensitivity that it deserves.

“For emphasis, it’s the rate that CBN borrows and lends to Commercial and Merchant Banks, as well as the rates at which those banks prescribe their lending and deposit activities to their clients.

“In the present circumstance the nation found itself, what CBN ought to have considered is to attempt to maintain the August position with a view to exhausting effect of 26.75per cent on the economy, more-so, when the global MPR too is fast easing.

“Of course, there is no doubt that the MPR increase would further tighten the economy, as it would make it difficult for the real sector and other users of fund to access fund for the manufacturing and other economic activities.”