Analysts Warn Continuous Hike in MPR Detrimental to Economy as MPC Meets Today

* Inflation, naira’s weakness, others on front burner

James Emejo in Abuja

As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) meets today to assess the state of the economy following recent consecutive increases in the benchmark lending rate, analysts yesterday warned that the continued monetary tightening stance was hurting manufacturing and small businesses.

This would be the third MPC meeting under the current CBN governor, Mr. Olayemi Cardoso. The February and March meetings witnessed hikes in Monetary Policy Rate (MPR) totalling 600 basis points. It was one of the most aggressive efforts to tame the mounting inflationary pressures, which further soared to 33.69 per cent, with the food index at 40.53 per cent in April.
Cardoso’s recent public utterances already suggest the apex bank will further tighten monetary policy tools to rein in inflation.  
The CBN governor also declared that the bank had reverted to its orthodox policy regime with a primary mandate to ensure price stability – even if at the expense of growth.

However, the committee might be preoccupied with the increasing inflationary pressures, and fluctuations in Foreign Exchange (FX) in recent times, as the local currency had shed most of the gains it recorded in the past few weeks that earned it the most performing currency in the world.
Nonetheless, analysts said given that previous increases in lending rates had neither tamed inflation nor stabilised FX volatility, the MPC ought to hold current policy instruments constant to allow previous decisions to permeate the system.

They particularly observed that the current inflationary attacks could not be addressed by monetary policy alone, as some of the kickers were structural issues.
President, Association of Capital Market Academics of Nigeria, Professor Uche Uwaleke, said MPC was likely to increase MPR by at least 100 basis points this month.

Uwaleke said, “They had raised it by four per cent in February and added two per cent in March. In line with the tightening stance of the CBN, we should expect another increase of at least one percentage point.
‘Inflation rose year on year in April despite the aggressive 600bps hike in the MPR between February and March and the exchange rate has yet to stabilize. So, MPC will still be concerned about the need to narrow the negative interest rate.

“Again, following the IMF-World Bank spring meetings last April, the CBN has received praise from the IMF and some global Rating Agencies, such as Fitch, for its monetary policy tightening stance.
“MPC will be mindful of that in order not to create a different impression, especially when the Bretton Woods Institutions are urging the bank to do more.”
Uwaleke said, “If I were a member of the MPC, I would vote for a hold position, as the aggressive policy rate hike is taking a toll on output. Production is stifled because of very high cost of funds.

“Moreover, the seeming over reliance on the MPR as a tool to tame inflation does not appear to be making any meaningful impact due to the significant non-monetary factors driving inflation in Nigeria, such as high cost of energy, transport as well as insecurity in the food-belt regions of the country.”
Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, also said, “I expect the MPR to be further increased by the MPC because the committee believes that raising interest rates is the solution to tame inflation.

“However, I believe the committee should put a hold on the prevailing interest rate and tackle other factors fuelling inflation, like high cost of goods and services, skyrocketing costs of food items, high energy cost and insecurity that has raised cost of agriculture production and reduced agricultural production due to inability to access the farm.

“Continuous increase in interest rates is hurting major manufacturers and SMEs who must pass high production cost to consumers.”
On his part, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said, “If I were part of MPC, I would vote to hold the MPR. This is because the CBN needs to observe and see the impact of the 400 and 200 basis points raised, respectively. They need to profile and isolate the impact of other factors outside the monetary policy.

“Food inflation cannot be reduced by tightening monetary policy, for example. High petroleum prices have their own effects on inflation.
“Exchange rate volatility also contributes to the woes of the economy. In Nigeria’s case, the more the policy rates, the more inflation.