MPC should pause the policy rate hikes – Experts

Economist and professor of Capital Market, Uche Uwalake has said the Monetary Policy Committee of the Central Bank of Nigeria (CBN) should pause the policy rate hikes as a further rate tightening would only worsen the situation as the cost of capital is increased and access to credit by small businesses is made more difficult.

He made the call ahead of the MPC meeting which comes up today and tomorrow following the recent removal of the fuel subsidy and exchange rate unification drive.

Uwalake said the MPC needs to recognise that the removal of fuel subsidy has slowed down economic activities considerably with an attendant drop in productivity. So, economic growth and jobs are already negatively impacted.

He said the decision of the MPC in the July meeting will be influenced by the rising inflation expectations due largely to the sudden removal of fuel subsidy, the pressure on the naira and exchange rate volatility occasioned by the recent naira float. “These considerations tend to recommend a further rate hike aimed at taming the stubborn inflation.”

He said the Ag CBN Governor who will be chairing the meeting has been part and parcel of the hawkish MPC stance for months now and so another rate hike will not come as a surprise.

He said: “further increase in the Monetary Policy Rate is likely to endanger the asset quality of banks through an increase in nonperforming loans as deposit money banks re-price their loans.

“In this regard, the balance of risks dictates that the MPC should pause the policy rate hikes, which has been on since May last year by maintaining a hold position on all policy parameters during the meeting.”

Similarly, Analyst at Cordros research said think the focus at this meeting will be setting a new tone for monetary policy direction over the next few months, in line with the monetary policy and FX reforms since 29 May.

The Analyst said; ‘Nonetheless, like previous meetings, we expect the Committee to consider developments in the global and domestic economy since the last policy meeting. On the global scene, systemic central banks are signalling a peak in their interest rate hiking cycles. However, they are leaving the door open for an additional smaller rate hike in the near term.

“Overall, while our baseline view is for the MPC to adopt a hold stance at this meeting, we do not rule out a 25bps – 50bps hike in the MPR while retaining other policy parameters.”