Some financial experts have said that the increase in the Monetary Policy Rate (MPR) would jerk up the cost of servicing the nation’s domestic debt.
They told the News Agency of Nigeria (NAN) in Lagos that the country needed a counter fiscal stimulus to reduce the adverse effects of the increase on the economy.
The operators were reacting to the outcome of the Monetary Policy Committee (MPC) meeting of the CBN on July 26, which increased the MPR by 200bps to 14 percent from 12 percent.
The committee retained the Cash Reserve Requirement (CRR) at 22.5 percent and maintained liquidity ratio at 30 percent.
Uche Uwaleke, head of Banking and Finance Department, Nasarawa State University, Keffi, said that the cost of servicing domestic debt would increase due to hike in bond yields.
Uwaleke said that the stock market would be “impacted negatively as equities become less attractive to portfolio managers as an asset class due to increase in bond yields and fall in bond prices.
“In the coming days and weeks, without a counter fiscal stimulus, I expect to see a bearish stock market,’’ Uwaleke said.
He said that commercial banks would be the worst-hit as the increase in MPR would automatically lead to another round of credit squeeze within the system.
“For a government that is desirous of encouraging the growth of SMEs, I wonder how this move would help an economy that is technically in recession,’’ he stated.
According to him, the outcome of the MPC meeting inspires little prospects for early economic recovery.
“I had expected some easing of monetary policy or at worst an unchanged MPR in view of the slump in Gross Domestic Product.
“With the benchmark rate jumping from 12 to 14 percent, the CBN has clearly chosen to focus on inflation rather than growth. Unfortunately, this approach will most likely miss the target,’’ Uwaleke said.
Bayo Adeleke, the national secretary, Independent Shareholders Association of Nigeria (ISAN), said that borrowers were in trouble with the expected hike in lending rate.
Adeleke said that the MPC’s decision would further affect economic activities, adding that investment in the capital market would further slow down.
He said, “Recession is really staring us in the face.’’
Adeleke said that he expected rate retention or slight decrease and slight decrease in Cash Reserve Requirement (CRR) to encourage lending by banks.
“We need to help this economy in the short-term because salaries are not paid nationwide. Purchasing power is very low.
“Prices have shot up due to devaluation of the naira. There is no liquidity anywhere,’’ Adeleke said.
The chief operating officer, InvestData Ltd Lagos, Ambrose Omordion, said, “the economy at this point needs a trigger for growth to redirect the system away from the path of recession.’’
Omordion said that interest rate increment would not support growth that would reduce inflation.
“Increase in MPR will stiff the economy as high cost of funds will not support expansion.
“People that are risk avert will still deposit their money in the banks and another money market instrument to the detriment of the stock market,’’ Omordion said. (NAN)
