MPR and cost of doing business
TRUE TO POPULAR EXPECTATION, the Monetary Policy Committee (MPC) met last week and elected to retain the monetary policy rate (MPR) and other rates unchanged. The MPR is currently 13.5 percent and represents the rate at which the CBN...
TRUE TO POPULAR EX PECTATION, the Monetary Policy Committee (MPC) met last week and elected to retain the monetary policy rate (MPR) and other rates unchanged. The MPR is currently 13.5 percent and represents the rate at which the CBN lends to banks.
By implication, interest rate cannot be lower than the MPR because the lenders too will add their margin and charges to the fund users. At the end of the day, the interest rate may be close to 20 percent.
Feelers that the MPC would retain the MPR and other rates emerged sometimes in August in London when the CBN governor, Godwin Emefiele, told Reuters that rates would remain unchanged until headline inflation fell to single digit figure, specifically 9 percent. Since then, the consumer price index (CPI) used in measuring inflation had gone up to 11.61 percent at the end of October from 11.24 percent in September
Analysts have predicted that members of the Monetary Policy Committee (MPC), wouldl leave the benchmark MPR and other monetary policy tools unchanged to spur economic growth in the fourth quarter of the year. This is despite concerns of inflationary pressure and declining external reserves.
.The country’s gross domestic product (GDP) growth rate increased to 2.28 per cent (year-onyear) in real terms in the third quarter of the year (Q3 2019), compared to 2.12 per cent in the preceding quarter, representing an increase of 0.17 per cent.
According to the GDP Q3 2019 report released recently by the National Bureau of Statistics (NBS), the growth rate in Q3 represented the second highest quarterly rate recorded since 2016.
Similarly, there has been stability in the exchange rate as the naira has continued to trade around the band of N360 to a dollar.
In contrast, latest figures from the Central Bank of Nigeria (CBN) showed that the country’s external reserves have fallen below the $40 billion mark, as it was at $39.954 billion as at last Thursday. The latest value of
the reserves showed a yearto-date depreciation by 7.25 per cent or N3.121 billion, compared with the $43.076 billion it was as at January 2, 2019.
While borrowing at 20 percent may be a dilemma for manufacturers and certainly not business friendly,
CBN has avoided rate cut like many countries have done in order to ease pressure on the naira which may be exposed to further currency crisis by rate cut.
Like analysts at Afrinvest Limited said recently, CBN was more interested in keeping the foreign investors happy rather than engineering economic growth by lowering the cost of doing business in the country. A rate cut may make investment in the country less attractive to the foreign portfolio investors who, it divest from the country, may lead to capital flight and more woes for the naira.
If Nigeria is to take charge of her destiny and launch herself on the path of sustained growth, a mix of fiscal and monetary policies that is progressive and development oriented is necessary Fiscal policy must address the a working economy full of incentives to the real sector while monetary policy must create the necessary macro economic stability that aids growth and development.
As long as we protect the interests of the foreign portfolio investors more than the interest of Nigerians, our dream and quest for genuine development will continue to elude us as a nation. The task of finding a working formula for the economy has been left to the CBN alone by this government and this is unhelpful to the cause of the nation.
L-R: John Evrington, Middle East and Africe Editor for The Banker; Omobalanle Victor- Laniyan, Head, Sustainability, Acces Bank PLC; Julie Soyinka-Sonuga, Deputy Head, Commercial Banking, Access Bank UK; Michael Buerk, English Journalist and Host of The 2019 Bank of the Year Award Ceremony, where Access Bank emerged as ‘Bank of the Year Nigeria’ in London at the weekend