A financial expert, Uche Uwaleke, says it is an “overkill’’ to increase the country’s Monetary Policy Rate (MPR) to 22.75 per cent from 18.75 per cent.

Mr Uwaleke, a professor of Capital Market at the Nasarawa State University, Keffi, said this in an interview on Wednesday in Abuja.

The CBN’s Monetary Policy Committee (MPC) increased the MPR by 400 basis in its meeting on Tuesday.

The committee also adjusted the asymmetric corridor to +100 – 700 basis points from + 100 -300 basis points around the MPR.

The cash reserve ratio (CRR) was increased from 32.5 per cent to 45 per cent, while the liquidity ratio was retained at 30 per cent.

According to Mr Uwaleke, increasing the MPR by 400 basis points in one fell swoop is simply an overkill.

“Why not by more than 200 basis points since they have another opportunity to meet next month and review the impact? They didn’t stop at MPR. They also jerked up the Cash Reserve Ratio (CRR) to 45 per cent, which at the previous level of 32.5 per cent is among the highest in sub-Saharan Africa.

“The CBN governor has assured that the policies of the bank will be evidence-based. Which empirical results support this aggressive move,’’ Uwaleke stated.

He said that the MPC decisions would affect the real sector of the economy.

According to him, the implication is that for every bank deposit, CRR takes 45 per cent, while the liquidity ratio takes 30 per cent.

“So, it is only 25 per cent of the deposit that banks can lend. This has negative implications for access to credit, cost of capital for firms, cost of debt service by the government and asset quality of banks.

“Expect banks to quickly reprise their loans with negative consequences for non-performing loans and financial soundness indicators. By this overkill on the economy in a bid to crash elevated inflation, which, by the way, has numerous non-monetary factors driving it, output is bound to shrink.

“So, expect lower gross domestic product numbers, especially from agric and industry sectors as well as a surge in unemployment levels. This is not a welcome development,” he said.

The founder of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, said that the outcome of the MPC meeting would hurt the real sector, which was already contending with numerous macroeconomic challenges.

Mr Yusuf said MPC’s decisions also posed major risks to deposit money banks.

Okechukwu Unegbu, ex-president of the Chartered Institute of Bankers of Nigeria (CIBN), however, said what the MPC tried to do was to take care of the problem of inflation.

According to Mr Unegbu, there is too much cash in circulation that needs to be mopped up.

He said the rates were not likely to last long as they were meant to check rising inflation in the short term.

“It is the best they can do for now. If inflation can be addressed and we produce more food, things will improve. It will also address the issue of ‘dollarisation’ of the economy,’’ Mr Unegbu said. 

(NAN)