November 22, 2017

A financial expert on Wednesday commended the Central Bank of Nigeria (CBN) for retaining the interest rate, saying easing monetary policy at the moment would increase inflationary pressure.

Dr Uche Uwaleke spoke against the backdrop of the Monetary Policy Committee (MPC) of the apex bank’s decision, at the end of the last meeting of the year on Nov. 21, to keep all rates and retain the interest rate at 14 per cent.

The apex bank also left the cash reserve ratio (CRR) at 22.5 per cent.

Uwaleke, Head of Banking and Finance Department, Nasarawa State University Keffi, told the News Agency of Nigeria (NAN) in Lagos that retention of the policy parameters was justified because inflation rate was still high.

“Inflation rate may be declining, but the rate is still high at 15.91 percent, well above the CBN’s upper band of nine per cent. Besides, the food index has remained very high at over 20 percent,” he said.

Uwaleke said that easing monetary policy at this time could aggravate exchange rate pressure and worsen current account balance on the back of increased importation.

“It could also discourage foreign investments since the real rate of interest will further be pulled into the negative territory.

“Therefore, at a time of fragile economic growth of just 1.40 per cent that is still driven mainly by the oil sector, an expansionary monetary policy could erode the modest gains already being witnessed in the forex market and create more inflationary pressures”, he said.

Mr Godwin Emefiele, CBN Governor, in announcing the MPC’s decision, had said that only one of the nine members of the committee voted against it.

“Inflation in particular requires very close monitoring to gain clarity on the medium-term optimum path of monetary policy,” Emefiele told a news conference.

According to the governor, the committee expressed concerns about the caution exercised by banks in lending money to customers.

“While tightening would strengthen the impact of monetary policy on inflation with complementary effects of capital flows and exchange rate stability, it could potentially dampen the positive outlook for growth and financial stability as this would constitute a risk in productive sectors of the economy,” he said.