NAN-HE-4
Rates
By Kingsley Okoye
Abuja, Nov. 23, 2016 (NAN) An economist, Prof. Uche Uwaleke, on Wednesday said retaining the current Monetary Policy Rates (MPR) in Nigeria would jeopardise the nation’s chance of getting out of recession.
Uwaleke made this known in an interview with the News Agency of Nigeria (NAN) in Abuja.
According to him, the decision to retain the MPR and reserve ratios at their present high levels may only help to curtail the pressure in the forex market.
The Monetary Policy Committee had in its bi-monthly meeting the last in the year 2016 retained the MPR at 14 per cent, Cash Reserve Ratio at 22.5 per cent and Liquidity Ratio at 30 per cent.
It also retained the Asymmetric Window at +200 and -500 points.
The Central Bank of Nigeria (CBN) Governor, Godwin Emefiele had said MPC’s decision was hinged on the economic indices playing out in the global and domestic economies.
He also advocated for more fiscal policies in the country.
Uwaleke, a Professor of Finance and Banking, Nasarawa State University, said the decision may possibly slow down the pass on effect of high exchange rate on food and other imported items.
He, however, said the tight MPC decision would make it difficult to jump start growth in the economy.
This, the financial expert said was because an average commercial bank’s lending rate was more than 20 per cent with many businesses choking under high cost of doing business.
“The high MPR at 14 per cent implies high cost of borrowing, not only by individuals and firms but also by the government that is depending on deficit financing to bridge infrastructural gap.
“So, domestic investments are bound to decline with adverse consequences for an economy that has officially recorded a contraction in GDP for three consecutive quarters this year,’’ he said.
According to him, the ripple effect of the present MPC stance will compound the problem of nonperforming loans in banks which is already over 10 per cent ahead of the regulatory threshold of 5 per cent.
Uwaleke said that the high interest rates made repayment of loans more difficult, noting that the stock market which was currently losing investors’ confidence would be the worst hit.
He also said that portfolio investors were bound to revise their portfolios in favour of government securities based on the MPC decision.
The financial expert said that the decision would also make the prices of shares to fall further when investors dispose their shares to invest in government bonds and treasury bills.
This, Uwaleke noted was due to high yields of the bonds caused by the high policy rate of the CBN.
He said he would have wished that the MPR and the reserve ratios were slightly reduced with the CBN putting in place adequate measures to ensure increased liquidity.
The financial expert said it would have resulted in loosening and channeling of funds by Deposit Money Banks to the real sectors of the economy instead of mounting pressure on the forex market.(NAN)
KC/ AOM/EEE
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Edited by Abdullahi Mohammed/Ese E. Ekama