Expert predicts MPC will leave rates unchanged

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will hold all the existing rates at its meeting this week, a financial expert has predicted.

Prof Uche Uwaleke of the Nassarawa State University, Keffi in an analysis made available to Nigerian Tribune said, “the status quo is likely to be maintained implying that the MPC will hold all the policy parameters.

“This means putting a hold to the accommodative policy stance signalled at the last MPC meeting in May when it reduced the MPR by 100 basis points from 13.5 per cent to 12.5 per cent.

“With inflation rate now at 12.56 per cent and above MPR, the MPC is not likely to reduce MPR any further since real interest rate is now negative with adverse consequences for capital inflows.”

According to the former Commissioner for Finance in Imo State, a further reduction in MPR even by 50 basis points from the current 12.5 per cent will result in widening the negative real interest rate which is inimical to capital inflows from foreign investors.

“A reduction in the cash reserve requirement would have been ideal to free up liquidity for the deposit money banks.”

He, however, noted that the challenge will be its potential to put more pressure on the forex market and by extension on external reserves.

“The reality is that monetary policy tools have been stretched to the limits.

“The MPC can only advise the CBN to sustain and ensure the effective implementation of heterodox measures already introduced to strengthen the asset quality and financial soundness of the banking sector including the recent global standing instruction which will facilitate repayment of loans by banks’ customers leading to a reduction in non-performing loans and improvement in liquidity.

“In order to support economic growth in a period of COVID’19, through increased credit to the real sectors, the MPC will also advise the CBN to maintain the loan-to-deposit ratio of 65 per cent for DMBs.”

Uwaleke advised CBN to also consider accommodating capital market operators in its COVID’19 intervention schemes.

 

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