MPC holds last meeting for 2019, to focus on inflation, interest rate

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will on Monday and Tuesday (25th and 26th Nov) hold its last meeting for the year.

Finance and economic experts believe the committee will look at most recent developments around inflation, Nigeria’s debt profile, interest rate and Gross Domestic Products (GDP) growth.

Analysts speculate that the spike in the headline inflation at a time of falling external reserves puts the MPC on the spot at the upcoming meeting, especially with the imminent wage-induced inflation.

“If the numbers come in lower than expected, the committee will be confronted with a policy dilemma. Meanwhile, the MPC members of the CBN have continued to express concerns over the increasing debt and its vulnerability to the nation’s economic growth,” analysts at Proshare said.

Some members are also expected to look back at their contributions in the last meeting and project the financial landscape for 2020.

“As the threat of debt vulnerability continues, a coordinated domestic revenue expansion with simultaneous fiscal prudence as suggested in the last MPC meeting remains the key to addressing the weak fiscal position of the economy,” Dr Robert Asogwa, member of the MPC said at the last meeting.

The House of Representatives last week urged the Central Bank of Nigeria to review its Monetary Policy Rates by putting into consideration the cost of doing business by banks.

Monetary policy rate controls interest rates and money supply and targets inflation.

At 13.5 per cent, Nigeria’s policy rate, which is at par with Malawi, is the sixth highest in Africa. It is lower than only Zimbabwe’s rate of 35 per cent, Sierra Leone’s 16.5 per cent, Ghana’s 16 per cent, Angola’s 15.5 per cent and Sudan’s 15.4 per cent.

Concerned about this, the House noted that there is a need to control the interest rates of banks lending particularly to Small and Medium Enterprises (SMEs), manufacturers and Industrialists.

But interest rates are determined by three forces. The first is the CBN, which sets the benchmark MPR.

That affects short-term and variable interest rates. The second is investor demand for treasury notes and bonds. That affects long-term and fixed interest rates. The third force is the banking industry. They offer loans and mortgages that can change interest rates depending on business needs.

Different types of interest rates are driven by different forces. Variable interest rates are just what the name says, they vary throughout the life of the loan.