Danger in continual increase in MPR, by Kola Amzat
The CBN Monetary Policy Committee has again raised the country’s interest rate by 25 basis points to 27.50% in November from 27.25 % in September 2024.
It would be recalled that MPR was moved from 26.75% to 27.25% in September, an increase of 50 basis points.
Indeed, the Apex Bank authority has been consistent in this trajectory of moving up the MPR in the last couple of months.
The Bank also declared that the Cash Reserve Ratio (CRR), was retained at 50% from 45%, with 50 basis points, for commercial banks, and from 14% to 16% for merchant banks.
Equally, the CBN governor said the committee retains the liquidity ratio at 30 per cent and the asymmetric corridor at +500/-100 basis points around the MPR.
It’s instructive to note that, consistently, the Apex Bank has been attributing the successive increase to their resolve to tackling inflation.
In October, the inflationary rate was 33.87%.
Specifically, at Apex Bank September meeting, the committee emphasized that the 27.25% increase then were consequent upon the core inflation, money supply growth and fiscal deficits, as well as overall pressure in food prices.
As much as this writer agree that CBN could deploy MPR increase to combat inflation, nonetheless, the authority of the bank MUST exercise caution and restraint in its bid to continually deploy increase in MPR as the only solution option.
It’s apparent that they can’t continue to sacrifice the desire to grow, develop and prosper the economy on the altar of continual increase in MPR.
Without no iota of doubt, the Apex bank decision over months has been stifling the flow of credit to manufacturers as the real sector of the economy has been experiencing the most difficult & challenging period in their existence.
The few players in the sector that dare to access the credit at the most unbearable and unfavorable cost, do so with the expectation that they could always pass the buck to consumers, who have not only be at the receiving end for months, but, have been totally dragged to the wall.
For the avoidance of doubt, CBN continual increase of MPR has huge effect on manufacturers’ product prices, massive effect on the employment, even, continue stay of the manufacturers on the shore of Nigeria, spiral effect on the economy, and more importantly, contribute significantly to crime rate-kidnapping, banditry, insurgence.
This writer is of the view that the CBN authority could deploy other ingenious ways & means of combating the scourge of inflation, other than continually resort to ONLY MONETARY POLICY critical tool-MPR.
Egg heads are specifically appointed as CBN governor and deputy governor to think out of the box, as well as apply HELICOPTER VIEWs on very thorny issues and are accordingly remunerated.
The present Board appointment is for a critical and most difficult like time like this.
The onus is therefore on them to deploy critical solution to this critical problem, and thereby re-fix and re-strategize on this hydra-headed issue of inflation that seems to be going out of their hands.
Kola AMZAT (FCA, FCIB)
Lagos based Financial & Management Consultants,
09077509348.
