English>

Market News

No compelling reasons to increase interest rate, Adedipe insists - THE GUARDIAN

JANUARY 19, 2022

By Geoff Iyatse


‘Growth will subdue inflationary pressure from political spending’

Ahead of the Monetary Policy Committee (MPC) meeting next week, Chief Consultant, B Adedipe Associates Limited, Dr. Biodun Adedipe, has made a strong case for the retention of the benchmark interest rate, saying there are no compelling reasons for an upward review.

The benchmark interest rate or monetary policy rate (MPR) is a major tool used to control the level of the money supply. It has remained at 11.5 per cent since September 2020 when the need to support growth compelled the MPC to reduce it by 100 basis points. There has been debate on the options before MPC in the face of normalisation of interest rates across the globe to tame fast inflation growth.

Adedipe, who spoke at the 2022 Economic Outlook of the Chartered Institute of Bankers of Nigeria (CIBN), yesterday, said inflation was not “so much a disturbing concern” as it is not likely going to exceed “the first level double-digit” this year.

He took exception to the description of economic growth as fragile and argued that it could not be seen as fragile as it is driven by the non-oil sector and above the population growth.

He projected that 2021 would close at an annualised growth rate of about three per cent.

While the country’s population expansion averaged 2.6 per cent in the past decade, the output growth rate of the first three quarters were 0.5, 5.01 and 4.03 per cent respectively. The economist said the growth remained resilient throughout the last quarter, which is yet to be realised and that if the growth finished at three per cent, it would confirm the assumption that the growth momentum is fairly strong.

With the economy returning to reasonable growth and inflation trending downward consistently until December, Adedipe said he would stick to hold if he were a member of MPC. He also argued that foreign capital would not necessarily flee the country on account of interest but that returns on investment (RoI) in Nigeria vis-à-vis interest rate would compete with returns RoI vis-à-vis interest rates elsewhere.

“We expect inflationary pressure to mount strongly this year being a pre-election year. Normally, spending for electioneering campaigns will increase liquidity and trigger inflation. But it will not go out of hand because the economy is also growing… We still expect the economy to grow at the rate of 3.2 and 3.5 per cent though the World Bank and the International Monetary Fund (IMF) projected a lower growth rate.”

“Looking at where the growth came from in 2021, which was the non-oil sector, there is the likelihood that we will see a repeat of what happened last year. Even the oil itself, despite the noise of alternative energy, there is still high demand. If the demand remains high and prices favourable as we have seen, the oil sector will add to the growth. If the growth trend continues in that way, it will suppress inflation,” he noted.

Adedipe, however, said the monetary authority could be compelled to devalue the naira on account of dwindling external reserves, which he said could barely cover five-month imports and the wide differential between the official and parallel markets.

President/Chairman of the Council of CIBN, Dr. Bayo Olugbemi, admitted the modest achievements recorded last year among which were the approval of the National Development Plan (2021-2025), with a projected investment of N348.7 trillion.

“The key focus of the Plan is on economic growth and development, infrastructure, public administration, human capital development, social development and regional development…. As we look forward with great expectations and more growth in the banking industry and the economy overall in the new year, several economic issues require the utmost intervention of the appropriate authorities in mitigating the dangers that could inhibit the furtherance of recovery in the Nigerian economy. Some of these economic issues include double-digit inflation rates, debt/income inequality, high levels of violence and social unrest in some parts of the country as well as the possible threat of the new variants of COVID-19 virus,” Olugbemi said.

SEE HOW MUCH YOU GET IF YOU SELL

NGN
This website uses cookies We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners who may combine it with other information that you've provided to them or that they've collected from your use of their services
Real Time Analytics