Analyst Foresees MPR Hike

By Nume Ekeghe

The Chief Executive Officer of Eczellon Capital Limited, Mr. Diekola Onaolapo, has predicted an increase in the Monetary Policy Rate (MPR) rate.

Onaolapo, said this in an exclusive interview with THISDAY in Lagos.

Comparing the 14 per cent benchmark MPR rate in Nigeria with other emerging markets, he held the view that with the increased capital outflow, the probability of further raising interest rate was high.

He said, “The tendency it would be increased in the near term is the probability given today’s dynamics is high. So, when there are calls from certain quarters that it should be reduced, you wonder why such recommendations are being made.

“So, if you look at comparable countries to Nigeria like the MINT countries (Malaysia, Indonesia, Nigeria and Turkey) and others like Mexico, South Africa, Argentina and Brazil, they have increased their benchmark rate.

“The same factors impact everyone in this era of global economic environment. Today, Argentina’s benchmark rate is 45 per cent which they increased by 500 basis points recently.

“Also, Turkey has been facing economic issues in recent times and they have increased their rate to 17.75 percent; while Indonesia was at 6.25 percent but has increased to 6.5 per cent. The only country that hasn’t increased is Brazil.”

But, Onaolapo stressed that “monetary policy alone is not enough, all other policy arms of the government should look at ways they could overall fiscally de-risk the economy.”

Also, he praised the recent Central Bank of Nigeria (CBN) policy aimed at boosting the real sector.

He said: “It is a very good policy. It is positive, it is going to impact the real sector and it a very creative approach to mitigating risks that the country is facing.

“So, if you look at some of the things that some people have clamoured in recent times like low interest rate to facilitate growth, but when you consider the economy and the need for growth in isolation you may agree. “But if you look at the headwinds the country is facing, there are so many other things that are likely to impact the economy if we have a very loose monetary policy environment.

“So, in order to manage that and at the same time still facilitate growth in the real sector, the CBN approached this creative initiative.”

But, he noted that there was need to design long-term fiscal policies that would support the real sector and boost economic growth.

“When you use monetary policy to fix economic imbalances, it is not really sustainable because monetary policy is meant for short term,” he said.

 Commenting further on the state of the economy, he added, “the Nigerian economy has strong fundamentals. It gets impacted by short-term shocks from time to time when there is pressure in the commodities environment.

“We see that the Nigerian economy is performing well and also, some of the policies of the CBN and readings we see in the macroenvironment points at an economic profile that is likely to maintain its growth trajectory.”

Onaolapo noted, “Investors would be watching the political environment, but anyone who has been playing in the Nigerian market and African market generally would have experience and know that we usually have this cycle and if we have a long-term investment approach, then you don’t need to be worried as much.

“Nigerian market has strong fundamentals and potential have been spoken of. The only issues we have are short-term shocks that we have sometimes from the policy environment and sometimes headwinds from the global arena.

“In the long-term, these things are usually managed, and the fundamentals would still come to prevail in ensuring that investments return in an attractive manner.”