Market News

As reactions continue to trail the decision by the Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC) at its meeting last week to again hike the benchmark interest rate — the Monetary  Policy Rate (MPR) — analysts at CSL Stockbrokers have cautioned that a perpetual increase in rates could hinder the country’s fragile economic growth.

In announcing the MPC’s decision to increase the MPR by 100 basis points to 14 per cent after previously hiking it to 13 per cent in May, CBN Governor, Mr. Godwin Emefiele, had stated that the move was aimed at reining in rising inflation to prevent it from retarding growth, adding that the committee would continue to raise rates if inflation continues to surge. Specifically, the CBN gover

nor said: “I want to signal, that the MPC is very determined that if inflation continues at this rate, particularly aggressively, we would continue to tighten.”

However, reacting to the MPC’s decision in a note released at the weekend, the CSL Stockbrokers analysts stated: “The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unanimously raised the MPR from 13.0 per cent to 14.0 per cent, the second consecutive hike and a cumulative 250bps increase within three months.

“With the current narrative on inflation, the committee was of the view that neither holding nor loosening the policy parameters was an option, given the impact of the rising inflationary pressures which may begin to erode the moderate   gains achieved in improving consumer purchasing power.

“We retain our view that a continuous hike in rate will likely constrain the country’s fragile growth while achieving very little in terms of combating inflation and attracting foreign inflows.” In addition, the analysts noted: 

“The further rise in the MPR, if it translates to an increase in market rates will narrow the interest rate gap and make Naira bonds more attractive, which may be negative for the stock market.”

New Telegraph had reported that a financial expert, Mr. Gabriel Idakolo, had urged the CBN not to use rate hikes as its major tool for curbing inflation but to focus on policies that can stimulate economic growth. 

Idakolo stated that the CBN’s increase of MPR to 13 per cent in May did not have any considerable effect on inflation, adding that “it is my belief that this hike will further compound the economic problems we are facing because cost of funds will rise sharply as it did last month due to the increase in MPR rates.

Lending rates will increase thereby leading to high cost of production and the cost will be passed to consumers who are already suffering the harsh economic policies of the government.”

He added: “The CBN needs to rescind its decision on continuous interest rate increases and look at policies that can stimulate economic growth because that is what would stem the rising inflation being experienced presently.”