There was hope that the CBN would reduce the Monetary Policy Rate.
Finance experts have said that the existing status-quo, characterised by gradually receding inflation, a resilient exchange rate, tight liquidity conditions and high interest rate, is here to stay as the Central Bank of Nigeria’s Monetary Policy Committee, MPC, retained the Monetary Policy Rate, MPR, at 12 per cent.
Despite the highlights and pointers of a general improvement in the economy and market confidence, finance experts hoped that the nation’s MPR will be reduced.
Some say that a reduction in the MPR would have shown the Central Bank’s pre-disposition to support the real economy amid slower output growth and high lending rates in the financial system.
“I was hoping they would do a 0.25 per cent drop in MPR” Opeyemi Agbaje, Chief Executive Officer, RTC Advisory Services Ltd, said, on the MPC meeting which started today.
“I believe we need interest rate to come down slightly, but as it is, the Central Bank is occupied with inflation and exchange rate” he said.
Mr. Agbaje said what this means is that the economy will remain the same.
“Perhaps the Central Bank is not yet satisfied with the current level of inflation. I was thinking the MPR would be reduced but that hasn’t happened, so it means things would remain at status-quo,” he said.
The Central Bank left unchanged its benchmark interest rate at 12 per cent Monday. It also took measures to tighten liquidity to support Naira, the fifth consecutive time.
The MPC raised banks’ cash reserve requirement to 12 per cent from 8 per cent and reduced net open foreign exchange positions to one per cent from three per cent to support the naira.
Nigeria has kept tight monetary stance to tame inflation even though experts say the Central Bank was under public pressure to ease interest rates after 3 consecutive months of falling inflation.
Bismarck Rewane, an Economist and Managing Director, Financial Derivative Company, a research, analysis and investment advisory firm, said the rise in inflation further supports the stance of the Central Bank in monitoring the MPR.
The firm had said it did not expect the MPC to change the benchmark interest rate at its next meeting in November but saw the possibility of easing rates in early 2013 is high if inflation remains moderated.
Mr. Rewane said the appreciation of the naira will also help in moderating inflationary pressures by bringing down the naira cost of imports, especially of commodities.
“This moderation, however, is transient, as the naira will find its true value based on the relative inflation rates between the US and Nigeria” he said.
The Central Bank Governor, Lamido Sanusi, said there are serious risks to growth in Africa’s second largest economy due to weaker global economic growth, lower oil output, a worsening security environment and high government spending, a Reuters report stated.
He said Nigeria is unprepared for a potential oil price slump because government is spending the country’s savings, which are stored in the excess crude account.