The Central Bank of Nigeria’s Monetary Policy Committee will hold its first meeting for the year today (Monday) and Tuesday to review developments in the economy and probably set a new direction for growth this year.
The 11 members of the MPC meet once in two months to evaluate the economy and make adjustments in key variables to set direction for economic growth.
The meeting is coming at a time the country is passing through a biting recession, which has seen inflation rate as high as 18.55 per cent, massive job losses, low consumer confidence, high volatility in exchange rate and other acute economic challenges.
Experts, who spoke to our correspondent on Sunday, forecast that the committee would leave key economic variables, including the Monetary Policy Rate (benchmark interest rate) and the Cash Reserve Ratio unchanged in view of the critical state of the economy.
According to them, there is a need for the MPC to lower the benchmark interest rate and adjust the CRR in order to enhance the capability of the Deposit Money Banks to create credit in the economy.
There was, however, a consensus among the experts that these policy adjustments might not happen.
They argued that the MPC had not historically shown that it was in favour of such policy adjustments in a recession.
“I think that because it is the beginning of the year, the MPC may not adjust any of the monetary policy rates; they will likely want to wait to see the direction the economy will go for the year,” the Director-General, West Africa Institute of Financial and Economic Management Studies, Prof. Akpan Ekpo, said.
It is believed that none of the tools of monetary policy can be adjusted to enhance the process of taking a country out of a recession.
Contrary to this view, Ekpo said recent studies had shown that an aggressive adjustment in a monetary policy tool could reverse recession.
However, he said, “I am not sure the MPC will want to carry out an aggressive adjustment in any of the tools of monetary policy.
“Take for instance, can the committee vote to bring the benchmark interest rate from the current 14 per cent to say 10 or eight per cent? No. This is why I am predicting that the committee may leave the policy rates unchanged for now; again, it is the beginning of the year.”
He advised the CBN on the need to work with the Ministry of Finance to achieve policy coordination between the fiscal and monetary authorities.
According to him, this is necessary to bring the country out of recession in the next few months.
A professor of Economics at the Olabisi Onabanjo University, Sherriffdeen Tella, said the MPC had increased or left unchanged the monetary policy tools in previous meetings.
He added that it was high time the committee brought down the rates.
Tella explained, “By now, it should be obvious to the MPC that the type of inflation we are experiencing in the country is cost push and not demand pull. It is not a demand pull inflation means it is not coming as a result of excess money supply, which the MPC is trying to mop up from the economy.
“The inflation is caused by increase in the prices of goods and services, which have been occasioned by significant increases in the cost of production caused by naira depreciation and high cost of credit. As a result, what the MPC needs to do now is to lower the MPR and increase the banks’ capability to increase credit.”
The MPR was retained at 14 per cent by the MPC at its 253rd meeting in November last year. It predicated its decision on the need to mitigate the fragile macroeconomic conditions and the strong headwinds confronting the economy, particularly the implications of the twin deficits of current account and budget deficits.
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