Victor EzejaEconomic experts have said the Decision of the Central Bank of Nigeria (CBN) to retain the monetary policy rate, also known as the benchmark interest rate at 27.5 per cent was the right decision given the status of the economy.
The CBN’s Monetary Policy Committee (MPC) during its 301st meeting on Monday and Tuesday, resolved to maintain the current monetary policy for the third consecutive time after the last hike in November 2024.
Join our WhatsApp ChannelThe CBN also retained the asymmetric corridor at +500/-100 basis points, cash reserve ratio (CRR) for Deposit Money Banks at 50.00 per cent and for Merchant Banks at 16.00 per cent; and the Liquidity Ratio unchanged at 30.00 per cent.
The apex bank governor, Dr Olayemi Cardoso, stressed that the decision was based on the need to “sustain the momentum of disinflation and sufficiently contain price pressures. Maintaining the current policy stance will continue to address the existing and emerging inflationary pressure.”
Economist, and Chairman of Tripple Gee & Company Plc, Samuel Ayininuola, said it was too early for the CBN to cut the interest rate, highlighting the potential impact on inflation, which the monetary authority is trying to contain.
“I think the MPC was being very cautious in maintaining the existing rate. Maybe that was why all the committee members voted unanimously,” Ayininuola stated when he featured on Arise News TV’s Morning Show on Wednesday.
“Obviously, expectations of Nigerians were that the rate would go down so that the cost of borrowing would go down, and the ability to do business would also be enhanced, and the burden of borrowing would be reduced. But there is this monster, inflation, that you have to consider. When you bring the rates down, inflation is likely going to go up,” he insisted.
The economic expert pointed out that apart from inflation, reducing the interest rate will also have an impact on the exchange rate. According to him, reducing interest would inject more into the financial system, which would put more pressure on the naira due to attendant increase in demand for FX as Nigeria is an import-dependent economy.
He noted that the headline inflation rate has dropped three times, but it is still too early to decide on reducing the interest rate.
READ ALSO:
- The Paradox Of Nigeria’s GDP Growth And Deepening Poverty
- Nigeria’s Gross External Reserves Rise To $40.11bn – CBN
- Again, CBN Retains Benchmark Interest Rate At 27.5%
On his part, development economist, Professor Ken Ife, also said the Central Bank’s decision to maintain the interest rate at 27.5 per cent was in order.
According to him, there is yet no significant sign in the economy, including the recent rebasing exercise, that should warrant cutting the interest rate as some analysts had advocated.
According to him, the macroeconomic indices are still negative, with oil prices far below the benchmark in the 2025 budget, and government borrowing is increasing astronomically. All these, he argued, mean that bringing down the interest rate would allow more money into the system, which poses risks of heightening inflation that is already on the downward trajectory.
“I can’t see why the Central bank would be stampeded into cutting the interest rate,” Professor Ife stated.
The development economist and public policy analyst said he had earlier advised that even if there was going to be any change in the monetary policy parameters, it should be the asymmetric corridor around the monetary policy rate.
Victor Ezeja is a passionate journalist with seven years of experience writing on economy, politics and energy. He holds a Master's degree in Mass Communication.
