MPC meeting: Pressure mounts over MPR rate reduction

Pressure from different financial stakeholders in the country have continued to mount on the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to reduce of the Monetary Policy Rate (MPR) from its current of 14 per cent.

The MPR, which serves as the benchmark interest rate in the country’s financial industry has been retained for seven consecutive MPC meetings at 14 per cent, but financial experts have expressed divergence opinions over the likely outcome of the MPC meetings which would holds today Monday and Tuesday in Abuja.

The MPC committee had retained the Monetary Policy Rate (MPR) at its last meeting in July at 14 per cent, Cash Reserve Ratios (CRR) for commercial banks at 22.5 per cent and the Liquidity Ratio (LR) at 30 per cent, Asymmetry corridor at +200 and -500 basis point.

But financial analysts and manufacturers believed that the latest economy report from the National Bureau of Statistic (NBS), which showed that Nigeria’s Gross Domestic Product (GDP) growth rate for the second quarter (Q2) 2017 grew by 0.55 per cent (year-on-year), may forced the committee to leave rate unchanged because of the insignificancy in the economic growth, so as not to obstruct the retraction in the economic growth.

Also, the Special Adviser on Economic matters to President, Muhammodu Buhari, Dr. Adeyemi Dipeolu, while commenting on the Africa’s largest economy exit from its worst recession in 29 years, agreed that the GDP growth remain fragile.

Speaking on the likely outcome of the meeting, Financial analyst, Afrinvest West Africa limited, Mr. Robert Omotunde, told our correspondent that the economy is very fragile, MPC is more likely to maintain status quo with regards to monetary aggregate rates, because the economy is just beginning to grow against after contraction in five consecutive quarters.

According to him, “It will be too soon to reduce interest rate. More so, the CBN is pursuing tightening monetary objectives.”

Also, Professor Leo Ukpong, dean, School of Business, University of Uyo and a financial economist, noted that though Nigerian core inflation rate which accelerated while the economy was contracting, which was an unusual trend, since the country has returned to growth, it was expected that the CBN would lower its interest rate benchmark.

“I believe the committee should drop interest rate, even if it just 50 basis points. If you look at it historically, they would probably retain the rates, but that would be a bad policy,” he argued.

However, with the business environment becoming more unfavourable in 2017 for manufacturing companies, according to the result of 2017 Manufacturing Sector Survey conducted by NOIPolls and Centre for the Study of Economies of Africa (CSEA), which was released last week, the clamour for the scaling down of interest rate has been on the

Private sector operators said it was imperative for the Committee to tinker with 14 per cent interest rate and other monetary aggregates as a way of stimulating economic recovery, following the country’s exit from recession in the second quarter of 2017.

The result of the 2017 manufacturing Sector Survey indicated that 85 per cent of the 496 manufacturing companies interviewed between February and May 2017 across the six geo-political zones of Nigeria, were operating below 75 per cent of their installed capacities.

According to the survey, 74 per cent of the manufacturing companies said the business environment has been unsupportive in 2017 against 60 per cent who made the same assertion in the corresponding period of 2016.

Larger percentage of the interviewees (55 percent) believed unfavourable foreign exchange rate and bad road made the operating environment harsher for them, while 47 per cent stated that it was unavailability of fuel that worsened the business climate during this period.

Research and Advocacy, Lagos Chamber of Commerce and industry (LCCI), Dr. Vincent Nwani, Director, said that the loan portfolios of many commercial lenders declined in H1 2017, because many manufacturers and SMEs shied away from obtaining credits due to lack of access and high cost of funds in the country.

“We hope the MPC will use the National Bureau of Statistics (NBS) report which says we are out of recession and we can only grow a little as a baseline and factor it into their decision. And the only way is to moderate monetary aggregates not only Monetary Policy Rate (MPR).

“We believe it is time for the private sector to return to the banking hall to collect loans, that is the only way we will have confidence that the monetary authorities are not working at variance with other stakeholders to move the country towards economic recovery, ” he added.

In the same vein, Dr. Adi Bongo, Faculty member, Lagos Business School, explained that the country’s inflationary trend was the backlash of government policies, not due to increased money supply. He asserted that the government has left interest rate very high to attract investors to subscribe to its treasury bills and bonds, which it has been issuing continuously to enable it fund capital projects since price of crude oil, which is the major source of government revenue, has been down, though it has appreciated to $55.70 last Friday.

The government has been issuing treasury bills and bonds at the rate of between 10-18 per cent, which has encouraged commercial lenders to reduce their loan risk appetite and embrace the fixed income market, thereby denying the real sector credits.

“Companies margin is about 10 per cent; there was no way they would be able to borrow as high as 25 per cent. They can’t cover their costs let alone make profit. This is the real challenge confronting the real sector. This is why Non-performing loan has been increasing.