MPR: financial experts advise FG on inflation-fighting tactics

Financial experts have urged the Federal Government to fix security and implement structural policies that would curtail rising inflation.

The experts gave the advice in separate interviews with the Newsmen on Tuesday in Lagos.

Supreme News reports that the advice comes against the backdrop of the Monetary Policy Rate (MPR) hike by the Monetary Policy Committee of the Central Bank of Nigeria (CBN).

The Acting CBN Governor, Folashodun Shonubi, recentlty, after the bank’s MPC meeting in Abuja, said that the MPR, which measures interest rate, had been raised from 18.5 per cent to 18.75 per cent.

He said that hiking the interest rate had made a lot of difference in moderating the rate of inflation.

The committee narrowed the asymmetric corridor to +100/-300 from +100/-700 and retained the Cash Reserve Ratio (CRR) at 32.5 percent.

Nigeria’s headline inflation rose to 22.79 per cent in June from the 22.41 per cent recorded in May 2023 amid soaring food prices and rising cost of transportation occasioned by the removal of subsidy on petrol.

This was according to the latest Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS) on July 17.

The CPI measures the rate of change in the prices of goods and services.

Prof. Akpan Ekpo, Chairman, Foundation for Economic Research and Training in Lagos, said that the inflation in Nigeria was mainly cost-push driven; hence, raising the MPR was not the solution.

“Fix security and implement structural policies to curtail inflation. If security is fixed, farmers will return to farming, which will impact food inflation.

“The inflation for now is not demand-driven; increases in petroleum, Motor fuel, and utilities, among others, are driving up prices.

“Furthermore, research has shown that the MPR has no positive impact on the cost of funds. Interest rates are still quite high and will remain so for a long time.

“The banking sector is not competitive enough to drive down interest rates. We have an oligopolistic banking structure,’’ Ekpo said.

The Chief Executive Officer at Cowry Asset Management Ltd., Mr. Johnson Chukwu, felt that the MPR had ceased to be the anchor rate for lending in the country.

He said, “So, there is actually a disconnect between the monetary policy rate and the lending rate. You will realise that if you look at the MPR, until yesterday, it was 18.05 percent, with an increase of 25 percent.

“But then Treasury bills, 364-day bills, closed last two weeks at 5.94 percent, and then 81-day bills closed at about 3.5 percent, so these are not representative of the inflation rate nor the monetary policy rate.

“So, inasmuch as the MPR is supposed to drive the direction of the money market rate, because of Nigeria’s macroeconomic peculiarities, we are not a consumer credit-dependent-driven economy. People do not go to banks to borrow to consume; therefore, you cannot manage consumption by increasing interest rates.

“Also, we have a lot of liquidity problems in the economy. Today's system liquidity is one, and there are also other limiting factors; the CBN does not allow banks to deposit more than two billion Naira a day.

“If the bank mobilises deposits, it first has to stabilise 32.5% as a cash reserve ratio, and then, if it’s not lending, it can only deposit two billion Naira per day as the excess liquidity it has.

“So, these factors make it difficult for the money market rate and lending rate to be anchored on the monetary policy rate,’’ Chukwu said.