MPR: Financial experts task FG on policies to curtail inflation

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 News Agency of Nigeria (NAN) on Tuesday in Lagos.

NAN reports that the advice is on 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 per cent.

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 Statistic (NBS) on July 17.

The CPI measures the rate of change in 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 impacting on food inflation.

“The inflation for now is not demand driven; increase in Petroleum Motor Spirit, 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 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 per cent, with an increase of 25 per cent.

“But then Treasury bills, 364 day bills, closed last two week at 5.94 per cent and then 81 day bills closed at about 3.5 per cent, 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 money market rate, but 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 rate.

“Also, we have a lot of liquidity sufferings in the economy. Today-system liquidity is one, and also there are 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 per cent as cash reserve ratio and then, if it’s not lending, it can only deposit two billion Naira day as the excess liquidity it has.

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