MPC to Retain Interest Rates, Analysts Predict

21 Jan 2013

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CBN Governor, Sanusi Lamido Sanusi

By Obinna Chima
Financial market analysts have anticipated that the Central Bank of Nigeria’s (CBN’s) Monetary Policy Committee (MPC) will leave interest rates unchanged at the end of its meeting in Abuja today.

The MPC has operational independence in the setting of the interest rates in the country. Decisions taken by the committee influences macroeconomic performance, investment decisions as well as activities of banks.

As usual, the MPC, which will meeting for the first time this year, will consider the state of the global and domestic economy in order to determine the appropriate policy response that will impact the Nigerian economy in the short-to-medium term.

At its last meeting held in November, 2012 the MPC retained the Monetary Policy Rate (MPR) at 12 per cent, maintained the Cash Reserve Ratio (CRR) at 12 per cent and maintained the liquidity ratio (LR) at 30 per cent. Inflation slowed year-on-year to 12 per cent in December, from the year-on-year 12.3 per cent it was in November.

But analysts at Sterling Capital, argued that recent developments, in the global economy suggested that concerns over the euro zone crisis and the United States’ fiscal cliff that are major external factors for consideration have been temporarily averted.

The firm however predicted that: “Going into the January meeting, we expect the decision of the Committee to skew towards retaining the MPR at 12 per cent. This is due to concerns over the inflationary outlook and the need to contain anticipated fiscal stance in the 2013 budget and also sustain the stability in the exchange rate.”
Sterling Capital also pointed out that recent development in the bond market as well as stability of the exchange rate had continued to attract Foreign Direct Investments (FDIs) with positive implication of accretion in the foreign reserve.

Nigeria’s forex reserves continued its accretion as it closed at $44.875 billion on January 16.

“The interest rates environment in the country however remains a major concern as it continues to raise higher cost for real sector growth. Besides, the government borrowing at exorbitantly high rates has continued to crowd out the private sector growth,” the firm added.

On its part, FSDH Merchant Bank Limited, which also forecast retention of interest rates, expressed concern that average lending rate to small and medium scale industries had remained high in the economy.

According to FSDH, the high finance charge had hampered the development of the manufacturing sector and contributed to the high unemployment rate in the country.

The firm insisted that: “A relaxed monetary policy should aid credit creation and flows to this important sector of the economy. Whilst we note the downward moderation in inflation rate, we reiterate that the current monetary policy stance of the CBN has not been able to achieve the desired single-digit inflation rate, due to structural and supply-side factors, of which monetary policy has recorded limited achievement.”
and the Funding Policy.
Addressing stakeholders at the forum, Minister of Communications Technology, Mrs. Omobola Johnson, said the significance of a proper addressing system as a strategic infrastructure for nation building had been universally recognised.
“Although the onus of implementing an efficient system of property identification constitutionally rests on the local government, the multi-dimensional nature of addressing and its wider effects on Nigeria’s development makes the intervention of the federal government inevitable,” the minister said.   

Tags: Nigeria, Featured, Business, Sanusi Lamidi Sanusi

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