***Decision Overkill, Uwaleke reacts
By Tony Obiechina, Abuja
The Central Bank of Nigeria (CBN) has raised the Monetary Policy Rate (MPR) by 400 basis point to 22.7 per cent.
The CBN Governor, Olayemi Cardoso disclosed this on Tuesday at the 293rd meeting of the Monetary Policy Committee (MPC) held at the CBN Headquarters in Abuja.
This is the first MPC to be held by the apex bank since Cardoso took over as CBN governor last year.
Announcing the decision, Cardoso said the committee agreed to raise the asymmetric corridor to +100 and -700; raise Cash Reserve Ratio from 32.5 per cent to 45 per cent and retain the Liquidity Ratio at 30 per cent.
Faced with rising inflation at 29.8 per cent and a currency that has depreciated, Cardoso is seeking monetary solutions to price and exchange rate stability.
The exchange rate went as high as N1,700 at the official exchange market last week and close to N2,000 per dollar at the Bureau de Change Segment of the Foreign Exchange Market.
By January last year, the exchange rate was at about N470 at the official market and around N740 at the BDC segment before floating the currency on June 14, 2023.
In the last MPC held on July 25, 2023, the monetary authorities raised the Monetary Policy Rate from 18.5 per cent to 18.75 per cent as part of moves to calm inflation.
Cardoso said the consideration for the hike in MPR was based on the rising inflation.
“Members were concerned about the persistent rise in inflation and emphasised commitment to reverse the trend,” Cardoso said.
Reacting to the development, Nigeria’s first Professor of Capital Market Studies, Uche Uwaleke described the decision of the Apex Bank as “an overkill.”
Uwaleke stated that it was dangerous to raise the MPR by more than 200 basis points since the Monetary Policy Committee has another opportunity to meet next month and review impact.
He said one of the negative impacts of the decision of the CBN would be lower Gross Domestic Product numbers especially from agric and industry sectors as well as a surge in unemployment levels.
Uwaleke said, “Jerking up the MPR by 400 basis points in one fell swoop is simply an overkill. Why not by not more than 200 basis points since they have another opportunity to meet next month and review impact?
“They didn’t stop at MPR, they also jerked up the CRR to 45 per cent which at the previous level of 32.5 per cent was among the highest in Sub Saharan Africa.
“The CBN Governor had assured that policies of the bank would be evidence-based. Which empirical results support this aggressive move?
“I pity the real sectors of the economy. The implication is that for every deposit in the bank, CRR takes 45 per cent of it while Liquidity ratio takes 30 per cent. So, it is only 25 per cent of the deposit that banks can lend. READ ALSO:
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“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 reprice 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 GDP numbers especially from Agric and Industry sectors as well as a surge in unemployment levels. This is not a welcome development.”
