An economic expert, Uche Uwaleke, has expressed support for the continued decision by the Central Bank of Nigeria to retain the country’s Monetary Policy Rate (MPR). Uwaleke, an Associate Professor and Head of Banking and Finance at the Nassarawa State University, Keffi, said this in an interview with the Newsmen in Abuja.
The don noted that the rate of inflation in the country was higher than the policy rate; a development he said made the real interest rate in the economy to be in the negative. Uwalek explained that bringing down the MPR would further pull the interest rate into the negative territory which would not augur well, especially for foreign investments. He said: “The positive macroeconomic indicators witnessed in recent times are still fragile and vulnerable to oil price shock.
“The Q2 GDP growth was chiefly driven by the oil sector. ‘’Similarly, improvement in capital importation was more from the highly volatile portfolio investment and retreating headline inflation is partly accounted for by baseline effect.
“Besides, at 16.01 per cent (August), the inflation rate is significantly higher than the upper band of nine per cent set by the CBN. “Real interest rate in the economy is negative since the rate of inflation is higher than the policy rate.’’
According to Uwaleke, one will have thought it was time to signal a gradual easing of the policy rate after being held at 14 per cent since July 2016, to tame high inflation and stabilise the exchange rate. He said that this was expected, considering the waning headline inflation, some level of stability in the exchange rate and the marginal positive growth in real GDP recorded in the second quarter.
“A lower MPR is expected to translate to reduced lending rates, increased access to funds by the real sector and cheaper cost of capital for firms leading to more job opportunities.
“ An accommodative monetary policy stance at this time is also expected to reduce the high cost of debt service by the government which has been crowding out public spending. “But this is not the case, as a reduced policy rate will not be beneficial for the country’s economy at the moment.’’
According to Uwaleke, cognizance should be taken of the uncertainty in the global environment, especially the normalisation of interest rates in the United States. The don explained that the US environment had the effect of strengthening the dollar with adverse consequences for the economies of developing countries and the seemingly complicated Brexit negotiations.
“Therefore, taken together, it does appear that the balance of risks is in favour of not tinkering with the policy configuration for the time being to give some more space for the policies to work. “ The primary mandate of the CBN, as spelt out in the CBN Act of 2007, is to maintain price and exchange rate stability, therefore, the decision to hold the rates is dictated by this obligation.’’
The expert, however, noted that complementary fiscal policies were therefore required to bring about full employment and inclusive growth in the country. He said the implementation of the 2017 budget, especially the capital component in line with the government’s Economic Recovery and Growth Plan, should be pursued with vigour. According to him, the effort will ensure the success of the economic recovery and growth plan.