Experts fear monetary policy rate will impact economy negatively
Published date | 08 January 2023 |
Publication title | Nigeria - The Nation |
The latest Monetary Policy Rate (MPR) announced by the Central Bank of Nigeria (CBN) has drawn flak from financial and economic analysts who are of the view that it may have a rippled negative effect on the economy in the short, medium to long term.
The CBN through its Monetary Policy Committee for the umpteenth time recently raised the Monetary Policy Rate (MPR), arguing matter-of-factly that previous increases were beginning to yield results and there was the need to keep tightening. Consequently, the MPR was hiked by 100 basis points from the previous 15.5% to 16.5% for the fourth consecutive time.
However, the Committee kept all other parameters constant (asymmetric corridor of +100/-700 basis points around the MPR, the CRR at 32.5% and the Liquidity Ratio at 30%).
The CBN believed that global inflationary pressure was quite high and there was a need to moderate the increasing inflationary concerns. Inflation remains the key consideration for the persistent hike in MPR. Inflation further increased for the 9th consecutive month with headline inflation (year-on-year) rising to 21.09% in October 2022 from 20.77% in September 2022.
The CBN is of the opinion that given the expected uptick in money supply associated with the forthcoming December festive season and the subsequent heavy spending during the 2023 general elections will halt the gains of the previous policy hikes.
This is just as it noted that the option of loosening was not considered given the numerous headwinds the nation currently faces.
Although the CBN is of the belief that raising rates will reduce money supply in the economy and control inflation, however some analysts are of the opinion that this decision could also slow down economic growth in the country. They are of the opinion that there is a possibility that the interest hike would have a negative effect on the country's growth and of little impact in lowering inflation.
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