Analysts Call for CBN To End Monetary Tightening Amid Rising Inflation, Economic Hardship

Analysts on Monday urged the Central Bank of Nigeria (CBN) to endeavour to end its monetary policy tightening stance and hold policy rates at current levels to ameliorate hardship in the country.

The advice came as the CBN Governor, Mr. Olayemi Cardoso, prepares to disclose the outcome of the Monetary Policy Committee (MPC) which had convened to assess the state of the economy.

The analysts particularly called on the committee to consider  other measures to check inflation, noting that monetary policy tools alone cannot achieve the desired objectives.

No doubt, the high inflationary environment will remain on the front burner as the highline index further increased to

33.88 per cent in October compared to 32.70 per cent in September.

The 1.18 percentage increase in the headline index was attributed to rising food and energy prices, despite the current harvest season when food prices are expected to moderate significantly.

The MPC is also expected to review the high Exchange Rate, currently at about N1,665 to the dollar as well as the not-too-impressive performance of the economy in the third quarter of the year.

Specifically, the high interest rate regime, occasioned by the monetary tightening conditions through inflation targeting, and which had led to higher cost of funds in the economy will remain a source of worry to the central bank.

In separate interviews, analysts further expressed concerns over the widening negative real interest rate regime – which makes the Naira weaker against the dollar, and erodes purchasing power among others.

Despite the existing headwinds, they urged the CBN to consider holding the rates constant rather than increase the Monetary Policy Rate (MPR), the benchmark interest rate which determines the cost of funds.

Director, Institute of Capital Market Studies, Nasarawa State University, Keffi (NSUK), Professor Uche Uwaleke, said the FX market was still experiencing pressure going by the forward rates of the dollar.

He said, “For the first time in many months, both core and food inflation went up last month. Ditto for rural and urban, Year on Year and month-on-month inflation, further widening the negative real interest rate.

“The FX market is still experiencing pressure going by the forward rates of the dollar. FAAC just shared over N1.4 trillion October revenues higher than the figures for previous months.”

Uwaleke said, “There’s also the approaching festivities’ period to consider often characterised by higher prices of goods and services.

“Against this backdrop, I won’t be surprised if the MPC further jerks up the MPR by at least 50 basis points next week.

“Nevertheless, all considered including the rising cost of funds for businesses, I would advise a hold position.”

Also commenting on the expectation from the MPC, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said using monetary policy tools only to wedge war on inflation and other negative indicators may not provide the optimum outcome required to solve economic problems.

He said, “We need to use economic combo solutions to resolve our recalcitrant headwinds. We have stretched the tools of monetary policy, yet the outcome has not matched the efforts deployed in taming inflation.

“This is still as many other factors continue to fight the efforts of monetary policy. We need to end the tightening effort and hold the rates, as we deploy other measures to check the rising costs of goods and services.

“Nigeria is a unique country that defies economic equations because of its peculiarities.”

On his part, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, posited that the CBN needed to balance monetary policy initiatives with the fiscal side so that other causative factors of inflation could be addressed aggressively.

Nonetheless, he said, “My expectations from the MPC meeting is to hold the interest rate at 27.25 per cent as well as the other indices. The present interest rate has increased drastically the cost of doing business and its stifling economic growth. 

“The inflation rate continues to rise despite the constant increase in interest rates and food inflation is not decreasing either.

“These measures need to be urgently implemented so that the CBN’s positive efforts made so far in defending the Naira will not go to waste.”

James Emejo

Follow us on: