A Financial Expert, Prof. Uche Uwaleke, has advised the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to reduce the Monetary Policy Rate (MPR) by 50 basis points.
(The MPR is an interest rate at which the CBN lends to commercial banks and other clients).
Uwaleke gave the advice in an interview with news reporters on Sunday ahead of the MPC meeting scheduled to hold on Tuesday, July 23 in Abuja, Nigeria’s capital city.
He said it was also pertinent for the committee to maintain 30 percent Liquidity Ratio and 22.5 Cash Reserve Ratio.
According to him, the call for adjustment of Monetary Policy Rate (MPR) is due to declining inflation rate from 11.35 percent in May to 11.20 percent in June as well as the growing external reserves and stability in exchange rate.
The reduction was also necessary because of persistent bearish performance of the stock market due to high interest rates.
The expert said a gradual reduction in the MPR, which was the benchmark interest rate, was consistent with the CBN Governor’s pro-growth five-year blueprint which he unveiled recently.
Uwaleke, also a professor of Capital Market at the Nasarawa State University, Keffi, North-Central Nigeria, emphasized that further adjustment was also in line with global trend as the United States and many other economies were pursuing an expansionary monetary policy.
“Reducing the MPR from 13.5 percent to 13 percent will still leave real interest rate in the economy positive and it will also most likely result in increased lending to the real sector.
“This is the expectation, especially now that the CBN is encouraging this, including through specifying for banks a minimum of 60 percent of deposits which must be channelled to the real sector,” he said.
Uwaleke noted that relaxing the MPR would also increase the Gross Domestic Product (GDP) growth which was put at 2.01 percent as at first quarter of 2019.
He said that besides, the risk to inflation arising from the new national minimum wage might not crystallise, while threat to food production due to farmers and herders’ conflict was no more as rife as it was previously.
Amaka E. Nliam