June 13, 2024

As the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) prepares for its July meeting, several financial experts have called for prudence in its decision-making.

The 292nd meeting of the MPC, to be chaired by acting CBN Governor Folashodun Shonubi, is scheduled for Monday and Tuesday. This meeting will be the fourth of 2023 and the first in about nine years to be chaired by someone other than the suspended CBN governor, Godwin Emefiele.

During the last MPC meeting in May, Mr. Emefiele announced a decision to raise the Monetary Policy Rate (MPR) by 0.5 percentage point, making it 18.5 percent. This was the highest rate since the establishment of the MPR in 2006. The CBN had begun tightening its monetary policy in May 2022, raising the benchmark interest rate from 11.5 to 13 percent.

Uche Uwaleke, a financial expert and professor of capital market at Nasarawa State University, Keffi, highlighted that the July MPC decision will likely be influenced by rising inflation expectations, primarily due to the abrupt removal of fuel subsidies. Additionally, the naira’s pressure and exchange rate volatility resulting from the recent naira float will also play a role in the MPC’s decision-making.

Uwaleke mentioned that the acting CBN governor, who will chair the meeting, has been associated with the hawkish MPC stance for some time, indicating that another rate hike would not be surprising. However, he advised the MPC to consider that the removal of fuel subsidies has significantly slowed down economic activities and reduced productivity.

On the other hand, Okechukwu Unegbu, a former president of the Chartered Institute of Bankers of Nigeria (CIBN), suggested that the MPC should lower the MPR to enable easier access to credit for the productive sector of the economy. Lowering the MPR would benefit economic growth by facilitating greater access to funds for the manufacturing sector and small businesses. He also recommended that the MPR’s impact on lending rates should extend to interest rates on savings.

Yemi Kale, partner, and chief economist at KPMG Nigeria, mentioned that the MPC faces a challenging meeting given Mr. Emefiele’s suspension. Economic growth is slow and fragile, requiring liquidity. However, the CBN’s ability to control inflation has been limited due to structural and supply-based drivers, which cannot be effectively managed with the money supply tools at its disposal. The recent growth in the money supply following various reforms could worsen inflation. Kale expects the CBN to prioritize its core responsibility of controlling inflation and tighten the MPR further while releasing the Cash Reserve Ratio (CRR) to support the economy.

Leave a Reply

Your email address will not be published. Required fields are marked *