By Adefolarin A. Olamilekan
The aftermath of covid-19 pandemic is still a subject of caution to global economic projection.
Especially as the latter part of the year 2021 experienced a fourth wave causing shock on economic activities world wide. Nonetheless, nation states are now gearing a purposeful ways to curtained any eventuality. This is inline to keep inflation tidings and other related economy headlines and most especially, local currency from turbulences as production is uncertain in a pandemic era. Paradoxically, what can monetary policies offers?.
Recently, the Monetary Policy Committee (MPC) of the Nigerian State Apex bank held its first meeting for the year 2022, in Abuja.
With huge expectations and anxiety as well as mounting pressure on the Central Bank of Nigeria (CBN) to have a rethink toward lower rate.
Interesting, the significance of this year first MPC meeting goes beyond what rate the committee would settle for. Or what some analyst have term “a shift to a hawkish monetary policy stance” To start with we need to demystify what constitutes Monetary Policy Rate (MPR).Because a lots of Nigerians are yet to understand how the economic work from that angle.
Simply, PR is the interest rate at which CBN lends to the commercial banks. The MPR serve as the benchmark against which other lending rates in the economy are pegged. Moreso, it is usually used as an instrument to moderate inflation in the economy. The aspect that sound confusing to Nigerians is benchmark of which banks can lends money to Nigerians. And most economist and financial experts finds that as the intriguing part of monetary policies direction.
Conversely, it is also that part the apex banks trends cautiously. Nevertheless, the first short on the rate for this year according to the CBN,MPC is 11.5%, with an asymmetric corridor of +100/-700 basis points around the MPR. This was followed by Cash Reserved Ratio (CRR) retained at 27.5%. While Liquidity was also maintained at 30%.
Succinctly, the CBN had maintained this current rate in a status quo of 25 times in the last 28 meetings. For instance, their are diverse interest and issues putting pressure on the MPC to increase benchmarks rate toward an upward positions.
Even with all inflationary tendencies in the economy’s. Especially amid the high cost of production, insecurity, dwindling government revenues, import dependency, foreign exchange volatility and the uncertain around global oil market. Arguable, the CBN Governor Godwin Emefiele give reasons justifying the committee arriving at the latest rate thus, “the MPC observed that inflation in most developed and emerging economies remain high driven by the persistent exchange rate fluctuations and supply bottlenecks”. He added further that the” committee noted that the increase in the country’s inflation rate in December 2021 is attributable to increased demand during the yuletide and hence suggests that the uptick in the numbers could be a temporary development. The members also believe that inflation will moderate further going into the new year driven by the significant interventions in the agricultural sector”.
In this regard, the MPC continuous retainment of the monetary policy rate at 11.5% is in furtherance of the “apex bank’s effort to bolster Nigeria’s economic growth through the expansion of credit to the real sector”.
Admittedly, with the “belief that despite the uptick in inflationary pressure, a hold policy will help to further boost the country’s economy while inflation is expected to moderate in the new year”. Fundamentally, a critical observation is the uncertain that hove around global economy current pressure that is not particular to the Nigerian monetary environment alone.
This many feared could cause an upset in the nation’s interest rate regime. Convincingly, the apex Bank MPC “highlighted that the Nigerian economy is expected to continue with a positive growth following the impressive growth recorded in year 2021 afterwards of the recession. Similarly, its also projects an “economy growth of 2.84% in 2022.The CBN MPC noted that holding stance would allow current recovery in output and decline inflation continue.”
Emphatically, this latest move by the CBN monetary policy committee is laudable going by it carefulness of not yielding to the temptation of tampering with the current rate.
Regrettably, the danger of double digit inflation of 15.44 % have put restraints on CBN to stand on it current.
With hindsight of the previous policy actions that work well for the economy from the apex bank assessment. Although, the common man on the entire streets and corners of Nigeria still want to see a concrete impact of all that would bring down a the price of sugar,spaghetti and milk. That is there concerns as far as any monetary policies will make a differences in there life and living.
Consequently, another factor that most have influence the monetary policymaker is that 2022 is pre-election season.
Considerable, analyst are of the view this may slow down government activities with aggravated impact on the economy.
Expressly, one cannot rule out the flow of cash that is going to be in circulation, with a demands pull pressure as transient on the monetary environment.
Subsequently, the repercussions of this on existing bank loans and debts,stock securities,prime investment as well as the health of the Naira cannot be overemphasis.
Going forward,our modest recommendations.
First, MPC must affirm its stands on continuous monitoring of the policy actions on the domestics environment. With it an eye also on the global central banks cautious action in tightening monetary cycle.
Secondly, the committee and CBN must match it policy statements with practical action demonstrated by sustaining its interventions to programmes across the real sectors – manufacturing, agricultural, and others. Most especially with its support toward improvement in aggregate food supply that should be link to the manufacturing sector. Critically, by extension, drive down prices and reduced importation.
Lastly, with CBN and the MPC acting in modesty with retention of the policy rate centres more on either as “striking a “hawkish tone” in light of the peace – mill tightening in global financings uncertainty.
As some analyst want us to agreed or to maintain “dovish stance” as its drive to safeguard and maintain the status quo needs.
Given the aforementioned, what is paramount is it not just the sustenance of the growth momentum,but an impactful monetary policy favourable to Nigeria economy development.
