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

In separate interviews, they said such a policy stance would allow market stability in the new year.

According to Umhe Uwaleke, a professor of capital market at the Nasarawa State University, Keffi, increasing the Monetary Policy Rate (MPR) now could jeopardise economic growth and 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 December 2022, not only in Nigeria but also in the United States,” stated Mr Uwaleke. “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.”

An economist, Tope Fasua, urged the CBN to shun the temptation to increase the rates further. He suggested that the rates should be retained and be guided by market trends, adding that constantly increasing interest rates could spur recession.

“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,” said Mr Fasua.

According to Muda Yusuf, the chief executive officer of the 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 a 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 inflation is expected to ease further in January. The analysts, however, projected that a high-interest rate would have to be retained if the apex bank intends to continue to tackle inflation.

“As long as the CBN remains committed to tackling inflation, the high-interest rate environment will persist in 2023,” they said.

Analysts at Cowry Assets Limited noted that the policy committee might soft-pedal on its tightening stance by a token hike of 25 basis points.

“We believe that a moderate reversal in the headline numbers will skew the voting pattern of the committee members in favour of maintaining a tightening stance,” the Cowry experts stated. “Regardless, the lag-effect from the policy tightening may take longer in reality as Nigeria has a weak policy transmission system.”

The committee had raised the benchmark interest rate (MPR) to a record high of 16.5 per cent in its last meeting in November 2022 to curb the escalating inflation rate.

The inflation rate had risen to 21.47 by November 2022.

(NAN)