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You are here:Home>>Archive>>CBN maintains 6.25% interest rate after Monetary Policy Committee deliberation
Thursday, 25 November 2010 16:09

CBN maintains 6.25% interest rate after Monetary Policy Committee deliberation Featured

Written by Afripol Financial Experts
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CBN maintains 6.25% interest rate after Monetary Policy Committee deliberation CBN Chief - Sanusi Lamido

Afripol recommends higher Monetary Policy Rate to counteract rising inflation

Central Bank of Nigeria (CBN) and its Monetary Policy Committee have decided to maintain the current benchmark interest rate at 6.25 percent. The retaining of the Monetary Policy Rate (MPR) at 6.25 percent was a surprise. Although there were no big changes in the economy and the economy was supposedly cruising at a steady pace at 7.9 percent for the full year growth. But that is not the complete picture, the large infusion of funds for rescued banks and reconstructions are likely to overheat the economy, subsequently triggering higher inflationary trends.

The once vulnerable banking sector with failed banks is being corrected. Initially the failed five banks were rescued with infusion of almost $4 billion dollars and the managing directors were sacked. And now, AMCON a state owned and controlled entity was set up to buy back toxic debts from ten banks at the tune of $14.6 billion dollars. The steady and large inflow of funds will definitely ease the credit crunch but it will likely increase the inflation. Therefore it was anticipated that a bump up of the interest rate to at least 7 percent should counteract the anticipated inflationary trend and the control of cheap money. Inflation looms as more spending and investment increases the economic output.

The Monetary Policy Committee of CBN is cautious in not altering the interest rate for fear of spurring any changes in the economy.  But their timidity is not justified because inflationary trend is rising and infusion of the funds is not going to slow it down. Therefore it is logical that Monetary Policy Rate (MPR) at 6.25 percent be increased not retained. Again Nigerian economy is expected to grow up to 10 percent in the preceding year and together with inflow of cheap money from both foreign and domestic investors may spur higher inflation.

The issue of the rising inflation is real; at the last quarter, inflationary rate was above 13 percent even with the promise made by Governor Sanusi Lamido Sanusi of Central Bank to keep inflation below 10 percent at the fourth quarter of 2009. The economy at fourth quarter of 2010 is expected to grow at 8.3 percent in December compares to 7.9 in September. The rapid and increasing growth is putting pressure on inflation. The application of the latent monetary policy appears to be the last resort of the apex bank and it should be boldly but vigilantly applied to stem down inflation.

Africa Political & Economic Strategic Center (AFRIPOL) is foremost a public policy center whose fundamental objective is to broaden the parameters of public policy debates in Africa. To advocate, promote and encourage free enterprise, democracy, sustainable green environment, human rights, conflict resolutions, transparency and probity in Africa.

 

Last modified on Monday, 29 November 2010 15:32

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