Experts project policy retention as CBN holds first MPC meeting in 2023

As the Central Bank of Nigeria (CBN) holds its first Monetary Policy Committee (MPC) meeting on Monday, some financial experts have suggested retention of current policy rates.

Speaking in separate interviews with our correspondent, they said that such policy stance would allow for market stability in the new year.

According Umhe Uwaleke, a Professor of Capital Market at the Nasarawa State University, Keffi, increasing the Monetary Policy Rate (MPR) now could jeopardise economic growth.

Uwaleke said that the MPC is likely to hold all existing parameters for two reasons.

“One, historical evidence suggests that the MPC seldom adjusts policy rates in January due to the need to allow the markets to stabilise in the new year.

“Secondly, inflationary pressure is beginning to reduce as seen in headline inflation numbers for Dec. 2022, not only in Nigeria but also in the United States.

“I do not advise a further hike in MPR, as doing so beyond the current high rate of 16.5 per cent is capable of jeopardising economic growth, ”he said.

An economist, Dr Tope Fasua, urged the CBN to shun temptation to further increase the rates.

Fasua suggested that the rates should be retained and be guided by market trends, adding that constantly increasing interest rate could spur recession.

”I hope they hold rates as is and watch what happens.

“Already inflation trended down 0.14 per cent, they may be tempted to further increase rates to accelerate the fall.

“But they need to now think about the fact that constant raising of interest rates could spur recession as life becomes harder for manufacturers,” he said.

According to Dr Muda Yusuf, Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Nigeria’s Cash Reserve Ratio (CRR) and MPR are among the highest in the world.

“The CRR of 32.5 per cent and MPR of 16.5 per cent are among the highest globally. High CRR in particular has become a key impediment to financial intermediation by the banks.

“There is need for the CBN to ease up on its tightening stance and cut some slack on some of its liquidity mopping measures,” he said.

Analysts at Financial Derivatives Company (FDC) said that inflation is expected to ease further in January.

The analysts, however, projected that high interest rate would have to be retained if the apex bank intends to continue to tackle inflation.