Experts speak on next steps as CBN retains MPR at 27.50%

• Experts spoke on the next steps as the Central Bank of Nigeria retained the Monetary Policy Rate at 27.50 per cent
• Johnson Chukwu said fiscal and monetary policies must align to retain economic gains
• Muda Yusuf expressed reservations about the Cash Reserve Ratio and asymmetric corridor around the MPR

Following the Central Bank of Nigeria’s (CBN) decision to retain the Monetary Policy Rate (MPR) at 27.50 per cent at the end of its 299th Monetary Policy Committee (MPC), experts have expressed what needs to be done going forward.

Apart from the MPR, the CBN also retained other monetary parameters including the asymmetric corridor around the MPR at +500/-100 basis points, the Cash Reserve Ratio of Deposit Money Banks at 50.00 per cent and Merchant Banks at 16 per cent, and the Liquidity Ratio at 30.00 per cent.

In their comments on the CBN’s decision, some economic experts say further interest rate hikes should not be expected in the immediate term as the CBN monitors the outcome of its decision, especially concerning the inflationary trend.

Recall that the CBN raised the interest rate six consecutive times in 2024 to tackle inflation, which soared to 34.80 per cent in December 2024 from 34.60 per cent in November 2024, before dropping to 24.48 per cent in January following the rebasing of the Consumer Price Index (CPI).

CBN’s decision signals shift toward positive environment – Chukwu

The Group Chief Executive Officer of Cowry Assets Management, Johnson Chukwu, said with a 24.48 per cent inflation rate, the decision signals a shift toward a positive interest rate environment, which makes further interest rate hikes unnecessary.

He added that investors are still enjoying positive returns, and as such, additional rate hikes may not be immediate.

“In terms of inflation, the decision to hold was based on the fact that the interest rate environment is now positive. Bear in mind that the Monetary Policy Rate is 27.5 per cent and inflation is 24.48 per cent.

“At this point, we can say that Nigeria has a positive interest rate. What that means is that we should not expect further increases in interest rates.

“The discount rate on Treasury Bills was 21.8 per cent, yielding effectively. This means that as long as investors get positive returns, we should expect that further increases in rates will not necessarily happen in the immediate,” Chukwu said.

Fiscal and monetary policies must align

Chukwu further stressed that the fiscal and monetary policies must align to ensure economic stability.

The financial analyst noted that both the fiscal and monetary policies should not enact policies that would erode the economic gains made so far.

He said, “The key thing we must know is that every policy has positive and negative effects. What that means is that the monetary authorities must come up with policies that do not counterbalance the fiscal authorities.

“The fiscal authorities have adopted aggressive fiscal policies and want to stimulate the economy, and what the monetary authorities must do is ensure they do not neutralize these fiscal policies.

“Any monetary policy that significantly increases the stimulation of the economy beyond what the fiscal authorities have done will lead to forex exchange pressure and inflationary pressure. To avoid that, at this point, they made the best decision.”

MPC’s decision is laudable – CPPE

The Centre for the Promotion of Private Enterprise (CPPE) lauded the MPC’s decision to pause further hikes of the interest rate.

The Chief Executive Officer of CPPE, Dr Muda Yusuf, in an interview with the News Agency of Nigeria (NAN) in Lagos on Friday, February 21, said the CBN’s decision to pause the interest rate will ameliorate rate pressures and lead to gradual relaxing of tightening measures.

He said, “This is within the context of the fact that, given the recently rebased inflation rate computation, we have seen a decline in inflation to 24.48 per cent, which is currently less than the monetary policy rate.

“So, I think it makes sense to retain the rates so that we don’t further exacerbate the pressure of interest rates on businesses and other citizens with exposure to the banks.

“But going forward, I think we should begin to see a moderation in the rates, we should now begin to see a relaxation of these tightening measures.”

CPPE expresses reservations about CRR rate, asymmetric corridor

Yusuf, however, called for future reductions and expressed reservations regarding the Cash Reserve Ratio (CRR) rate and the asymmetric corridor around the MPR.

He noted that the economic and macroeconomic situation of the country does not require the CRR to be pegged at 50.00 per cent for Deposit Money Banks and 16 per cent for Merchant Banks.

Yusuf added that the asymmetric corridor of +500/-100 basis points around the MPR is too wide.

“I don’t think we should continue on that trajectory. There is no justification for it. Our economic or macroeconomic situation is not so dire as to warrant such an outrageous level of CRR.

“The closest to Nigeria’s CRR of 50 per cent is Turkey’s, which is just 25 per cent. Going forward, I think the CRR needs to be reduced.

“If the MPR is already at 27.5, an asymmetric corridor at +500 basis points is not healthy.

“Going forward, I think these are things that we need to review because if we continue on this trajectory, we will be practically disconnecting the financial system from the real economy. And this will have a very serious impact on economic growth,” Yusuf added.

299th MPC meeting: Will CBN drop, hold, or hike interest rate?

Meanwhile, TheRadar earlier reported that the Monetary Policy Committee of the Central Bank of Nigeria would hold its 299th meeting on February 19 and 20 to determine the monetary policy decision and direction of the CBN.

Experts and analysts were left speculating about the direction of the CBN’s monetary decisions between dropping the rate, holding the current rate, or continuing its hike approach.