Some experts have rejected the International Monetary Fund (IMF) proposal for the Central Bank of Nigeria (CBN) to further tighten the nation’s monetary policy rate (MPR).
They also set agenda for the first meeting of the reconstituted Monetary Policy Committee (MPC) this year on Tuesday and Wednesday in Abuja.
On March 7, the IMF in its report at the end of its 2018 Article IV Consultation on Nigeria noted that although the country’s economy exited recession, its fundamentals remained vulnerable.
Its directors therefore recommended a tighter monetary policy in the short term to contain inflation, a “growth-friendly fiscal policy” to reduce dependence on oil revenue and create space for priority expenditure on infrastructure and social safety nets for the private sector.
Since the last MPC meeting in November 2017, inflation rate has declined from 16.27 per cent to 14.31 percent in February 2018, while MPR, or lending rate remained unchanged at 14 per cent for nine consecutive time since 2016.
But, experts said IMF’s recommendation for tighter monetary policy at a time of a fragile economic recovery shortly after exiting recession was “ill-advised, insensitive and out of tune with the Nigerian –economic reality.”
The experts who spoke with PREMIUM TIMES on Saturday said IMF’s proposal was capable of derailing the recovery process. They said the primary desire of most Nigerians at the moment was how to sustain the growth in the economy.
For the Lead director, Centre for Social Justice (CENSOJ), Eze Onyekpere, the next MPC meeting should move away from the IMF and World Bank economic theories and focus on fresh Nigeria-centric monetary policies to move Nigeria and Nigerians in the Diaspora to the next level of economic development.
Mr Onyekpere said since monetary dominated fiscal policy during the recession period, the MPC must review the monetary policy indicators to see if the rates could be cut to allow banks lend to impact economic growth and productivity.
“Tightening MPR would increase lending rate. This does not make sense, as more and more people would be shut out from accessing finance for their businesses. To get the economy growing, Nigerians need to get resources at affordable rates,” Mr Onyekpere said.
The Head, Banking & Finance Department, Nasarawa State University, Joseph Uwaleke, said options before the MPC in its next meeting would be to either hold or reduce MPR, although he said he was not expecting any raise during the meeting.
Mr Uwaleke who said inflation rate was still high at 14.3 per cent as at February, said reducing MPR during Tuesday’s meeting may drag real interest rate further into the negative zone and negatively impact foreign exchange market.
Being the first time many of the MPC members would be attending the meeting, he said Nigerians expect the rates to hold, to allow members time to study the situation, settle down and think about reviewing downwards the policy rate in their subsequent meeting.
Also rejecting the IMF call for CBN to further tighten monetary policy, the economist said the best time to consider reducing the MPR should be when inflation rate has gone down significantly to about 12 per cent, or at single digits.
Lead Economist, SPM Professionals, Paul Alaje, said apart from lowering cash reserve requirement (CRR) from 22.5 per cent agreed during the November 2017 meeting, he expects a cut in MPR to be from 14 per cent to 12, as the MPC cannot justify the highest MPR rate ever in the history of CBN.
CRR is the minimum fund the CBN can allow a commercial bank to hold in its reserve.
Mr Alaje said because MPR has been at the highest level ever, youth unemployment has equally increased to above 33.1 per cent, while inflation dropped to 14.31 per cent, according to the National Bureau of Statistics data.
He said focus of monetary authorities should be to begin to review its policies in view of the huge toll the faceoff between fiscal and legislative authorities have taken on the economy, resulting in the period for budget passage lingering beyond the mandatory three months.
“With high MPR, it becomes difficult for people to borrow at 25 per cent from commercial banks; microfinance at 48 to 50 per cent, and money lenders at between 60 to 120 per cent per annum. People need to rely on borrowing from the commercial banks or other financial outfits to do their business.
“The MPC must make the high MPR to be more-friendly, as done in South Africa and Kenya in recent times,” he said.
Chief Executive, Economic Associates, Ayo Teriba, said although the country’s economy exited recession and out of the negative zone, the economic recovery remains largely fragile.
Mr Teriba said the key concern of monetary policy remained three: sustaining recovery with unemployment at all-time peak; see how soon MPR could ease to support economic growth and create employment for the youth, and managing inflation and foreign exchange rates.
On the agenda for the meeting, the experts urged the MPC to strive to realise the IMF and World Bank recommendation for a convergence between the official and parallel market foreign exchange rates for proper policy direction to players in the economy to reduce round tripping and illicit currency trading.
Much as easing monetary policy would provide support for recovery and employment, the experts said the MPC should sustain the rate until inflation was brought back to single digits in their next meeting or “meeting after the next”.
Besides, they noted that with no convergence of the official and parallel market rates, it would be unwise and counter-productive to ease MPR now, as this would divert the pressure to the foreign exchange market.
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