Experts back CBN’s decision to retain 11.5% interest rate

Economic and financial experts have supported the decision of the Monetary Policy Committee of the Central Bank of Nigeria to again retain all monetary parameters, including the benchmark interest rate.

The MPC said at the end of its two-day meeting that the Monetary Policy Rate would remain unchanged at 11.5 per cent, while the Cash Reserve Ratio and Liquidity Ratio would be held constant at 27.5 per cent and 30 per cent respectively.

Announcing the committee’s decision in Abuja, the CBN Governor, Mr Godwin Emefiele, said, “The MPC believes that the existing parameters have supported the growth recovery and should be allowed to continue for a little longer for consolidation to achieve the committee’s mandate of price stability conducive for growth.

“Therefore, by unanimous vote, the MPC voted as follows: retain MPR at 11.5 per cent; retain the asymmetric corridor of +100/-700 basis points around the MPR; retain the CRR at 27.5 per cent; and retain the Liquidity Ratio at 30 per cent.”

He said the committee expressed several concerns about shifting the rates, adding that while tightening the parameters would significantly reduce inflation, it would also increase the cost of funds and constrain output growth.

“On the other hand, whereas loosening will lower policy rate, ease liquidity pressure and stimulate additional credit creation, which will boost output growth, MPC also thinks that loosening will further widen the negative real interest rate gap and compound the price distortions in the money market which could fuel inflation pressures,” Emefiele added.

The MPC has retained the monetary parameters for 14 consecutive months.

The last time the monetary policy rate was reviewed was in September 2020, when the apex bank lowered it from 12.5 per cent to 11.5 per cent while maintaining all other parameters.

Emefiele said the continued security challenge across the country remained a major source of concern for members, noting its impact on business confidence, foreign investment inflows and overall economic activities.

Speaking on the latest development, a professor of Economics and Public Policy at the University of Uyo, Akpan Ekpo, said he wasn’t surprised by the decisions of the apex bank, stating that there was no need to revise the rates as inflation rates had been trending downwards.

“The outcome is in line with what I was expecting because inflation is trending downwards, so there is no need to revise the MPR, and the economy is on a recovery trajectory. I expect the CBN to review the rates in the next quarter,” he said.

Expressing a similar view, the immediate past Director-General of the Lagos Chamber of Commerce and Industry, Muda Yusuf, said he agreed with the CBN’s position and the emphasis on the need for impactful interventions by the fiscal authorities.

“I agree with the outcome given the prevailing economic conditions. I also like the fact that there was a lot of emphasis on what the fiscal side should do around issues of promoting public-private partnership, issues of security and things like that and the role of government in exports,” he said.

An economist and past presidential candidate, Prof. Pat Utomi, said, “It doesn’t really matter whether the monetary authorities are going to decide to increase or reduce the rates because nobody is borrowing money anyway because they is no money to lend to the creditor.

The inflation is going to keep galloping because it is not the economic choices that are being made that are affecting the economic conditions but the political choices.”

A former President, Association of National Accountants of Nigeria, Dr Sam Nzekwe, said he did not expect the rates to be changed.

<<Punch>>