Some financial experts on Wednesday lamented that the retention of Monetary Policy Rate (MPR) at 14 percent will increase inflation rate and the banking sector non-performing loans (NPLs) profile. Heighten

The monetary policy instruments alone could not engender or trigger economic growth, but could only contribute to stifling growth and worsening unemployment situation in the country.

Following the outcome of the Monetary Policy Committee (MPC) meeting held on the 21st and 22nd of November in Abuja, the financial experts stated that retaining the interest rate at 14 percent and the Cash Reserve Requirement (CRR) at 22.5 percent would induce inflation.

According to Dr Glenn Prince-Abbi, the Executive Consultant/Chief Executive Officer, Espera Global Corporation, the decision to retain all the key indicators was worrisome, and it will increase inflation rate and worsen the present economic recession.

He said that reduction in the interest rate would improve the cost of doing business and boost companies profitability, adding that the headline inflation which was already at a ceiling breaking of 18.33 percent would remain or even worsen with the MPC decision.

He said; “The action of the MPC to retain all the key indicators is worrisome. It does appear to me that the Central Bank of Nigeria (CBN) believes ever so strongly that no form of actions on adjusting monetary policy instruments is needed to work in synch with the ongoing fiscal policy propositions by the government. How can we depend strictly and solely on fiscal policies to make the necessary adjustments and keep sacrosanct and untouchable fundamental monetary instruments.”

He said that the high interest rate regime which is retained has not allowed any form of reduction in the costs that producers are already contending with, pointing out that the monetary policy instruments alone could not engender or trigger economic growth, but could only contribute to stifling growth and worsening unemployment.

He noted that high interest rate regimes, as part of the monetary policy engineering, were adopted by the national economies partly to check over-supply when such arises.

Also speaking, Dr Uche Uwaleke, the Head of Banking and Finance Department, Nasarawa State University, Keffi, noted that the ripple effect of the present MPC stance would compound the woes of NPLs.

He stated that banks NPLs would increase because high interest rates would make repayment of loans more difficult, stressing that stock market, which is currently on a bearish trajectory on account of waning investor confidence, will be worst hit.

He said that portfolio investors were bound to revise their portfolios in favour of the government securities, adding that the share prices would plunge further when investors dispose their shares to invest in government bonds and treasury bills whose yields were currently high due to high policy rate of the CBN.

He said that the decision of MPC to retain MPR and reserve ratios at their present high levels might help to curtail the pressure in the forex market, saying that it will slow down the pass on effect of high exchange rate on foods and other imported items.

Uwaleke stated; “Unfortunately, this tight monetary policy stance jeopardises the country’s chance of exiting the present economic recession. It will be difficult to jump start growth in an economy where the average commercial banks’ lending rate is over 20 percent with many businesses choking under high cost of doing business.

“The high MPR at 14 percent implies high cost of borrowing, not only by individuals and firms, but also by the government that is depending on deficit financing to bridge infrastructural gap. So, domestic investments are bound to decline with adverse consequences for an economy that has officially recorded a contraction in GDP for three consecutive quarters this year.”

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